Property prices were at the forefront of the EU debate in the run-up to the referendum, with the former Chancellor George Osborne claiming that the value of homes in the UK could fall by as much as 18% following a Brexit vote. Based on the average price of a home in the UK, this equates to a fall in value by more than £50,000! A scare tactic we think, and rather bold given that there is this rather severe housing shortage.
The office for national statistics recently forecast that the number of households will rise by 23% to 28 million by 2039. This is equivalent to a rise of 5.3million, or 210,000 households a year.
Let’s just think re those statistics, 210,000 households per year, and we then get an understanding of the housing crisis facing Theresa May and her new government.
The growth in households outpaces the growth of the population, which is expected to increase by 16% over the same period. The balance of the increase is due to a rising number of households as the country trends towards smaller household sizes.
The strongest growth rates are expected in London but outside London and the South East growth hotspots include Corby (39% increase in households by 2039), Charnwood in Leicestershire (31%) and Leicester (29%); these are amongst the highest in the country.
This just shows the level of DEMAND for housing, and the scale of the challenge for the house building industry. Please note that last year there were just 160,000 new homes built. The Government’s target is 200,000 new homes a year and according to a new report from the House of Lords Economic Affairs Committee 300,000 new homes a year are needed just to meet the existing demand for housing in this country.
You would think housing output would therefore be rising in 2016 but this has fallen in every month this year apart from February, and the signs are that development levels could fall even further in the coming months given Brexit uncertainty.
Overall, the UK has missed its house building targets by a staggering 1,199,180 since 2004, recent figures from Yorkshire Building Society revealed.
From an investor’s perspective the signs are clear; DEMAND far outweighs supply and basic economics dictates that this will lead to increasing prices; be it house prices or rental values; both having a long term positive impact on investor’s returns. Meanwhile SUPPLY seems constrained and likely to remain increasingly so throughout 2016.