Many factors will determine the path and strength of the UK housing market over the next five years. We highlight the key influences which range from a strong and relatively stable domestic economy to problems in China and possible contagion through to affordability and borrowing constraints and Government initiatives.
Fundamentally, however, we believe that a strong UK economy will prove the solid bedrock from which the housing market can move forward. Improved employment and wage conditions, together with a more prosperous and secure outlook, will instil greater confidence in household finances. This will lead to more people buying their first home as well as encouraging existing homeowners to move up the property ladder.
There will be headwinds, with affordability proving a dampening influence on both price growth and transactions, while China and emerging country problems provide an external threat to the otherwise steady UK economic prognosis.
HOUSING MARKET FORECASTS
We are forecasting house price growth of 5% across the UK in 2016 with annual growth of 3-5% pa over the next five years.
We believe UK transaction volumes will rise steadily from today’s levels, pushing towards 1.31m by 2019. This is an improvement from recent years but is still well below the 1.67m in 2006.
Importantly, construction levels should increase, helped by government initiatives and a resurgent housebuilding sector. However, deep-seated industry capacity constraints as well temporary resource issues, including labour and material shortages, will apply some brake on progress. Despite this, we are forecasting English housing completions will rise to 160,000 pa by 2018, a notable improvement from recent years.
SETTING THE FOUNDATIONS
Despite a rise in construction, we continue to build insufficient housing across the UK to meet growing demand which ultimately leads to higher house prices and a situation where fewer and fewer people can afford to own.
There have been various initiatives in recent years and the new Conservative Government have waded in with their Housing & Planning Bill recently in an attempt to solve our undeniable housing crisis. Whilst their efforts are welcome they are probably insufficient in themselves. We believe that plenty more needs to be done. We suggest a few ideas in this report.
Importantly, the Conservatives now have five years, perhaps ten, to make their mark and to lay the foundations that can really enable and empower the housing industry to deliver a greater number of homes. We hope that both they and the house building industry will grasp the opportunity.