The housing market looks to be heading into Autumn on firmer footing

The lovely people at RICS produce a UK Residential Market Survey and the recent copy makes for good reading with the headline for me being “the housing market looks to be heading into autumn on firmer footing”. The driving force behind this prediction is the good old buyer – enquiries are on the increase and the rationale is that enquiries are on the up, therefore the market must be. A cynic could say well they are only enquiries and what is the conversion rate?   Let us not forget that supply is still tight and therefore the increase in price indicated by the survey is not a huge surprise, in fact everything happening seems to be supporting the prices increasing further – but when does the bubble start to deflate (note – not pop!). This overheated market that people discuss is largely driven by London and the South East and in truth (and from conversations in the market) it would not be unexpected if London saw a price reduction in the next quarter reflecting nervous foreign investors and the push and pull mentality of policy between affordable and social housing and high end glamour. In a modern world can we simply not have both?   In contrast to this report, a large estate agency has called for the government to cut stamp duty citing a significant decline in interest from buyers had led to a fall in house prices in September. This 1.1% decline is a warning of the market says Haart. But what this does say is even the industry cannot agree of what the market is doing.   Prices are rising but not consistently across the UK. Scotland now is the lowest riser and in fact the difference between the price rises in Scotland and the rest of the UK is the widest it has been since 2005. Maybe worries about Scotland breaking away from the UK are taking their toll?   The UK population is growing, and people need a place to live. However, many homeowners - especially first-time buyers - are finding themselves priced out of the market by the rising prices. Despite Government-led initiatives like Help to Buy, first-time buyers are finding that they're having to find vast deposits to be in with a chance of getting on the housing ladder.   So what is the Government doing? Well in September 2015 it was announced by the then Housing Minister Brandon Lewis that they wanted to build a million new homes by 2020, despite many saying the aspiration was too low. It is considered too low due to years of housing completions being below even the 200,000 target. Bodies disagree on the number of houses built each year but one thing is consistent – they are below the Government target and the NHBC target of 250,000 per annum.

 

 

 

 The numerous factors causing a shortfall are simply not being addressed:

• Construction skills shortage – since many skilled workers retrained during the recent recession. The Government in January 2016 challenge the construction industry to train more home-grown talent (having become dependent on overseas workers) – though there was no incentives to do this and certainly little support. In fact with tax changes, such as apprentice levy, further costs are being brought to the sector. The naming of foreign workers would have been an administrative burden too. In fact a recent RICS survey shows wage increases in the industry are 6% (three times the national average) as the knock on effect of low levels of labour. The solution – introduce tax breaks for training to incentivise the sector or set up joint academies.
• Planning problems – long blamed as one of the main reasons – slow, sluggish and bureaucratic. The National Planning Policy Framework was implemented in 2012 and this shows a steadily rise in detailed planning permissions since 2011. The finger now seems to have been pointed at housebuilders for holding back on buildings. The solution is clearly to determine a way to monitor the process – each side blames the other.
• The rising cost of land – a study found that residential land prices between 2000 and 2007 rose by 170%, compared to house prices which rose by just 124%. The effect was to make some sites not financially viable. The solution is the industry needs to embrace ways to make construction cheaper – like off-site construction.  

• The lack of social housing – local councils use to build more houses than the private sector, but that significantly reduced over time. Housing associations have seen an increase but not enough to fill the void left by local authorities. The solution is to release restrictions for building by both and then for them to partner in the private sector to bring forward schemes.

• And finally fewer small housebuilders – it is too early to say whether recent Government initiatives will help on this front with an estimate of less than 3,000 across the country now largely due to financial restrictions and availability being key issues to their fall. The solution may have already been provided but it is clearly support them.

There are clearly a number of factors and each one requires differing action but can easily impact each other. Three areas I would certainly tackle are prioritising spending on housing (and recent announcements may aid this) but it should be at least £2bn per year on affordable housing. Launch a National Housing Investment Bank giving loans and guarantees for new homes and lastly increase spending restrictions on local authorities.