The state of the housing market in 2016: a failure to deliver homes continues
26 May 2016
Another year has passed and the delivery of homes has failed to live up to long-term averages. The interesting dynamic though, is the move by housebuilders to building bigger units therefore offering lower density on developments.
Growth in the private housing market has increased year on year and is now significantly up on the lows of 2009, yet this is underpinned by three and four bedroom homes and an ever increasing percentage being taken up by Help to Buy – currently standing at 27%.
April 2016 saw average house prices increase by a marginal 0.2% - though most did expect a decrease. The monthly rise was the lowest since November and brought the year-on-year rate of increase down to 4.9%, from 5.7% in March. In London, prices were up by 13.9% over 12 months, to an average £534,785 – five and a half times the average price of a home in the north-east, which fell by 0.7% over the year to £97,581.
The UK went through a phase around ten years ago of building more apartments than houses in major cities, this has moved to more than 80% of homes developed being houses and interestingly, in a number of cities, such as Sheffield and Hull, these houses are being built in the city centre.
The house price growth over the last few years has largely been driven by London, where growth has been at 75% since 2009 spurred by a lack of demand generally, but countered by the demand from buyers wanting to move into the city. From a broader perspective, the regions are a mixed bag of results largely due to the recovery from recession taking longer. However, most regions are now seeing positive growth, although nowhere near the levels London has experienced.
The perfect storm though has materialised for most regions. Economic growth has largely returned to most areas in the UK coupled with mortgage rates still being relatively low, Help to Buy is supporting those first time buyers who need a hand with a deposit and then to top it off the price-to-earnings measure is broadly in line with the long-run average. So why wouldn’t people want to buy a house? Let’s take a look at five key areas:
- The Government made a pledge to build 1 million homes by 2020 and they are behind the target. Help to Buy was introduced to encourage house builders to build, and it has, look at how well house builders are doing – but it is now allowing people to buy houses they cannot afford.
- Starter homes are being introduced – at a 20% discount to market price (the price they should be rather than the inflated price) – and the sector that needs housing is social housing, this needs more support. You have to wonder how the 20% reduction will be addressed and ask how will costs be cut to ensure some profitability on the site?
- The private rental sector. Reduced tax breaks, stamp duty surcharges and much more means although private rental is encouraged, it is also becoming a costly business. However, it has been the safety net for so many, providing housing solutions to those unable to buy.
- Planning – short and sweet. It does feel as though it has improved slightly, but more can be done to increase efficiency and reduce red tape.
- The government wanted to introduce innovation into home buying, but we are still waiting. There have been improvements and I’ve met a few businesses that are making these, although not through anything the government has done.
In summary, we see ourselves with a housing market that is faltering on delivery, dwindling on the private rental sector, partially helping first time buyers, but could do much more, and completely failing on introducing innovation into the housing market as promised.