House prices curfew

A friend of mine just made a note about the economy in England and the Euro zone, it was even estimated that they do expect a 10% rise in unemployment . The point my friend actually now made was, since the housing market is down, consequently, the price of rent would go up and would make getting to live in say, London, cheaper.

That’s more like assuming that a drop bananas would drop the price of orange juice; I would approach this with the demand and supply concept.

As the market for houses slows down, there in turn would be less and lesser people owning house and more being ejected from their homes. Unless of course this ejected people decide to sleep on the street, the alternatives would be to rent. In this same market [society], we the demand for rents would increase, which in turn would be a motivation for home owners to raise their renting, knowing that most customers (who of course would be desperate) would be willing to pay that cost.

But then, since home owners now have a highly valued good, who they raise the price indefinitely? Hopefully not, they would raise it to as much as customers are willing to pay. If the previous price was say, €500, the current situation might drive it up to €550, that o course would only last until the homeowner sees a client willing to pay €650, of which, our hypothetical home owner might just evict the customer paying, €550 (and maybe pay him €50, for the trouble, pocketing an additional €100).

The moral of this is, the slowing of the market in one sector, often gives a boast in another like in this case – a drop in the amount of homeowners motivates an upward rise in prices of rent.

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