Modular Homes – A solution to the Housing Crisis?

modular-housing

Modular Homes are houses built in factories and then quickly erected on site (much like Ikea’s flat pack furniture). One housing association claims it takes just one day to build a 3 bed house from scratch in their factory. These pre-packed homes can then be put up on site in less than 48 hours.

It is believed by Government officials that investment in this method of house building could be a solution to the housing crisis. Currently housebuilding targets are not being met, coupled with increasing demand for housing, this has led to a shortage of housing and soaring house prices. Therefore, the Government are putting funds aside to invest in 100,000 ready made homes.

This is not the first time we have seen pre-built homes in the UK. After WW2 Winston Churchill backed investment in prefab houses. However, these homes were only designed to last 10 years, symbolising poor quality. Today technological improvements mean that quality is no longer an issue, with modular homes often being high tech and aimed at younger, first time buyers. Although, this does mean that they currently more expensive to construct than traditional houses.

Questions

  1. Explain why house prices in the UK are increasing, use a supply and demand diagram in your answer. (5 marks)
  2. Analyse why the UK is experiencing a housing crisis. (6 marks)
    • Suggested Structure
    • Identify one reason for the UK’s housing crisis
    • Use evidence from the case study/own knowledge to support this reason
    • Explain why this leads to a housing crisis referring to economic theory/diagrams
    • Identify one reason for the UK’s housing crisis
    • Use evidence from the case study/own knowledge to support this reason
    • Explain why this leads to a housing crisis referring to economic theory/diagrams
  3. Assess whether the supply of housing in the UK is likely to be price elastic or price inelastic. (8 marks)
    • Suggested structure
    • Define PES
    • State a reason PES for housing is likely to be inelastic
    • Use evidence in the case study/own knowledge that supports this reason
    • Explain why PES of housing is inelastic referring to economic theory
    • Explain what your assumption of the housing markets PES depends on
    • State a reason PES for housing is likely to be elastic
    • Use evidence in the case study/own knowledge that supports this reason
    • Explain why PES of housing may be elastic referring to economic theory
    • Explain what your assumption of the housing markets PES depends on
  4. Discuss the likely impact of investment in modular homes on the housing market. (15 marks)
    • Suggested structure
    • State a possible positive impact of the introduction of modular homes on the housing market
    • Use evidence in the case study/own knowledge that supports this impact
    • Explain the long term consequences of modular homes referring to economic theory/diagrams
    • Explain what the validity of this impact depends on
    • State a possible negative impact of the introduction of modular homes on the housing market
    • Use evidence in the case study/own knowledge that supports this impact
    • Explain the long term consequences of modular homes referring to economic theory/diagrams
    • Explain what the validity of this impact depends on
    • Overall what is the most likely impact of investment in modular homes on the housing market?

Mark Scheme

  • Explain why house prices in the UK are increasing, use a supply and demand diagram in your answer. (5 marks)
    • Up to 3 marks for an accurately labelled diagram which shows a shortage of supply.
    • Explanation that the prices have increased to reduce Qd and increase Qs (1) Reference to the price mechanism/invisible hand e.g. House prices have increased to ration demand/incentive for firms to increase supply (up to 2 marks)
  • Analyse why the UK is experiencing a housing crisis. (6 marks)
    • Demand reasons:
      • Rising disposable incomes means more people willing/able to buy houses
      • Reduction in unemployment may increase demand for houses more than able to supply
      • Increase in population size due to immigration means supply can’t meet demand
      • Low interest rates means more people willing/able to buy house
      • Overseas investment, especially in London, increasing demand
      • Help to buy scheme means more demand for housing
  • Supply reasons:
    • Lack of available resources to build enough houses to meet demand e.g. Availability of land/labour
    • It takes along time to built a house so supply unable to keep up with increasing demand
    • Government regulation e.g. Green Field sites, means it’s difficult to find the space to built enough houses
    • Lack of spare capacity/low number of unoccupied houses means that can’t increase supply to meet demand
  • Assess whether the supply of housing in the UK is likely to be price elastic or price inelastic. (8 marks
    • Reasons supply is price inelastic
      • Takes a long time to build so supply can’t increase immediately in response to rising prices
      • Lack of availability of land so can’t increase supply of houses in response to rising prices
      • Lack of resources e.g. skilled labour, makes it difficult to increase supply of houses in response to rising prices
      • Lack of unoccupied houses means that there isn’t spare stocks of housing which can be used to quickly increase supply
      • Strict Government regulation restricts where can built houses so it’s hard to increase supply by building more house
    • Reasons supply is price inelastic
      • Outside of cities land is more available so producers can increase supply of houses more easily in response to rising prices
      • If government regulation is relaxed e.g. on building Brown Field sites, it may be easier to increase supply in response to rising prices
      • The introduction of modular houses means that less land and time is needed to build more houses
    • Depends on:
      • Location e.g. cities more inelastic PES than countryside
      • Time period – More elastic if looking at supply over 2 years than 6 months
  • Discuss the likely impact of investment in modular homes on the housing market. (15 marks)
  • Possible positive impacts:
    • Supply becomes more price elastic as reduces time taken to build houses
    • Less land is needed to build houses as house design is more flexible e.g. Build upwards to add more space
    • Increases the supply of housing, especially in cities. Use of a Supply and Demand diagram with supply shifting right
    • Helps to eliminate shortage of housing. Supply shifts right to meet demand, leading to new equilibrium, resulting in allocative efficiency in the housing market
    • Reduces the price of housing as increased supply, as shown on diagram.
    • Reduces inequality as more people are able to afford a house
  • Counterbalance:
    • Modular homes are still expensive so it may only benefits high income earners. Therefore, it doesn’t actually reduce inequality in the housing market. Although, this may free up affordable housing.
    • Demand may continue to outstrip supply, especially if house prices fall signalling to consumers to buy more houses
    • There may not be demand for modular houses as historically seen as flimsy/not a real house
    • Producers may charge high prices for modular homes due to profit incentive so not actually affordable.
    • There’s an opportunity cost for the Government of investing in modular housing as they could be using money to build traditional homes

Credit: Lucy Temple.

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