Housing in a Free Market Economy Essay Example | Topics and Well Written Essays - 3000 words

Housing in a Free Market Economy - Essay Example With the end of the housing blast of the past decade, the UK government under Gordon Brown wants to energise the housing sector of the economy. The government’s interference in housing and its authenticity in playing a role in the housing market through its policy initiatives is being seen doubtfully by experts as they perceive the ups and downs of the market functioning a part of the business cycle of regular intervals of boom and bust OR the government’s desire to meddle in the housing affairs just shows the obsession of the people to own a home of their own OR the government has started realising the importance of hosing market in the overall economy of the country, needs o be analysed (The Telegraph, 5 June 2008). The government can intervene in housing sector by planning its role through various choices and taking certain measures. It can initiate a national homes saving scheme by facilitating first-time home buyers to use their tax-free 5-years period deposits. It can allow parental help by making the contribution in the housing of their children tax-free. It can increase the stamp duty to a certain limit to minimise the impact to new buyers. The government can declare a stamp duty ‘holiday’ for a stipulated time to boost the housing market. It can loosen the regulatory grip so that home building activity becomes hyper. It can be lax in insisting on Home Information Packs, which are offered and paid by the sellers. The government can limit the number of ‘affordable homes’ on the upcoming housing locations to boost housing growth as house making is less profitable for making affordable homes (The Telegraph, 5 June 2008). Competition is very important in housing market to disrupt the rent-seeking tendencies by powerful builders. Rent seeking, laissez-faire and state intervention not only kills competition between the market forces but comes in the way of innovation. Government level intervention can bring about greate r transparency in the housing transactions (Hooper, 2009). Arguments in Favour of Government Intervention in Housing Sloman and Sutcliffe (2004) state a number of reasons inviting government intervention in business. To fulfil the aim of social efficiency, which is attained when marginal benefits become equal to marginal costs from production or consumption activity, government can interfere in the specific business market. Response of market to changes in supply and demand may be slow, which can impair the level of equilibrium and cause instability. A free market does not consider the needs of less-affordable people and therefore, the production of merit goods could be insufficient. Market irregularities can be corrected through taxes and subsidies. Taxes can be increased to equal the size of the marginal external cost and offering subsidy equal to the marginal external advantage. The government can regulate the market behaviour by making certain laws to be abided by for the benefi t of common man. These are some of the steps government can take to interfere in the market for any business activity. The current discussion on government role in housing market has gained momentum because of the global financial crisis, which has drawn the attention of policy makers in the UK government. It wants to rescue the housing and banking sector, as housing and finance are inter-related sectors; without getting loans sanctioned by the financial organisations, the home buyers cannot purchase houses and the housing industry cannot attain growth. On its part, the British government through the Bank of England made $352 billion available via the Special Liquidity Scheme to enhance the