UK needs to build more homes
Britain’s next government should loosen planning regulations and encourage more house building if it wants to tame price rises and make home ownership more affordable, nearly all the specialists polled by Reuters said.
A dearth of supply, a constant influx of foreign investors and a booming buy-to-let market have sent British house prices skyrocketing over the past two decades, with only a brief hiatus during the financial crisis, putting home ownership beyond the means of many.
“What governments have failed to do is to tackle capacity in the housebuilding industry and the planning sector,” said Anthony Lee, joint head of residential consulting at BNP Paribas Real Estate UK.
“This is a critical issue that is impacting on the ability of developers to deliver more housing to meet pressing demand.”
Housing is a hot-button political topic in Britain, which holds a national election on June 8 that Prime Minister Theresa May’s ruling Conservatives are predicted to win by a landslide ahead of tough divorce talks with the European Union.
May pledged last week to provide funding to local councils in Britain to build more homes, a move which could significantly boost the amount of government-backed social housing for the first time in decades.
The Conservative Party has promised to build 1.5 million homes by the end of 2022 while cracking down on rising ground rents and increasing security for good tenants by encouraging landlords to offer longer tenancies as standard.
Jeremy Corbyn’s opposition Labour Party has also pledged to embark on a building spree if it wins the election.
But despite previous concerted government efforts to boost housebuilding and deal with the chronic shortage, there has so far been little success in taming roaring prices.
Britain’s biggest builder Barratt said earlier this month it would build fewer properties in London next year after a decrease of around 20 percent this year.
“The next UK government should prioritise policy making with small and medium-sized housebuilders in mind, ensuring that they are encouraged, backed and incentivised to enter the housing market and help put more new homes on UK streets at affordable prices,” said Hugo Davies at LendInvest.
However, home ownership is the bedrock of consumer wealth in Britain, and those already on the property ladder would likely be reluctant to see values fall.
“It remains difficult to see why from a political point-of-view any government will shoot themselves in the foot and deliberately initiate policy to slow house price growth,” said Marcus Dewsnap at Informa Global Markets.
With any reforms likely to take time to bear fruit, house prices will continue their climb. Nationally, prices are forecast to rise 2.1 percent this year and 2.0 percent in 2018 and 2019, the poll of 30 specialists found.
In the capital, they will hold steady this year and next as many foreign investors who snapped up London properties remain spooked about the outcome of the Brexit talks.
But house prices are expected to rise 1.9 percent in 2019, the year the EU divorce agreement is set to be signed. All medians were revised down from a February poll.
“London will underperform until the impact of Brexit on the demand for high value housing can be better assessed. This means three years of underperformance,” said Ray Boulger at mortgage brokers and advisors John Charcol.
In London, the average asking price is a whopping 649,864 pounds ($844,043), according to property website Rightmove, many times higher than the average salary of Britons.
Even nationally, the average asking price is 317,281 pounds, meaning getting the 10 percent deposit required by most mortgage lenders can be a struggle for those wanting to buy their first home.
“Long-term low interest rates support the market, with the main constraint for buyers being finding the deposit and other costs, whereas monthly payments are comfortably affordable for most people,” Boulger said.
Perhaps unsurprisingly, when asked to rate affordability on a scale of 1 to 10 where 10 is the most expensive, London was ranked 9 and nationally it was around 7.
Yet when asked if a house price correction was likely in the next two years, a majority said it was not.