Tony Ward is chief executive of Clayton Euro Risk
As Theresa May fires the starting pistol for June’s general election, I’m back to the issue of the housing market this week – a subject so important to the economy, it’s never far from my thoughts. The danger is that, in an election centred on Brexit, housing will not feature highly – a lost opportunity considering some creative thinking on this subject is needed desperately.
Spring’s arrival traditionally marks the start of heightened activity in the market. However, news last week from the Royal Institution of Chartered Surveyors’ (Rics) didn’t make for great reading. Its latest monthly survey shows that stock levels have hit a record low, with 13% more of its members seeing a fall in homes for sale compared with those who experienced a rise.
On average, each estate agent has just 43 properties for sale on its books, the lowest number recorded since 1994. The number of people interested in buying a property and the number of sales were also ‘stagnant’ in March, Rics said. However, because of the shortage of housing, it said prices in many parts of the UK are continuing to accelerate. While prices carry on falling in Central London, Rics said that price rises in the North West were ‘particularly strong’.
Most surveyors across the country expect prices to rise over the coming 12 months, but by a smaller majority than in February. “High-end sale properties in Central London remain under pressure, while the wider residential market continues to be underpinned by a lack of stock,” noted Rics’ chief economist Simon Rubinsohn. “For the time being, it is hard to see any major impetus for change in the market, something also being reflected in the flat trend in transaction levels.”
This doesn’t surprise me. I’ve always argued that there is unlikely to be any sort of a house price crash when demand massively outstrips supply. But this stalemate is depressing. The entire market is stagnating with no credible solution on the horizon. The government’s recent white paper offers little in the way of long-term solutions. A combination of inflated asking prices, tougher lending rules, recent stamp duty rises and economic uncertainty are believed to be causing the market to stall a people decide to stay put and renovate their homes rather than move. Lucian Cook of Savills said the latest Rics figures pointed to an ‘increasingly needs-based market, which is characterised by lower transactions and where prices are underpinned by a shortage of supply rather than a surge in buyer interest’.
Which brings us back to that word ‘supply’. For decades, across much of the UK, far too few homes have been built. The average house now costs almost eight times annual earnings – a record multiple. And in London and the South East, of course, this ratio is much higher. The majority of an entire generation of young adults is locked out of the property market. Over half of first-time buyers get assistance from ‘the bank of Mum and Dad’, rising to two thirds in the South East.
Part of the solution, or course, is to build more homes. Yet the March PMI construction index, which monitors the UK’s leading building firms, last week pointed to a housebuilding slowdown. During the final three months of last year, 2% fewer new homes were completed in England than the same period in 2015. Over 2016 as a whole, while 5% more new homes began construction compared with 2015, the number of completed new-builds was actually 1% lower. Just 168,000 new-builds came to market across the UK in 2016 – way below the 250,000 per year needed to meet demand.
So that’s part of the problem. But supply isn’t just about how many homes we are building. It’s about churn. What financial incentives are out there to encourage people to move house, be that upsizing or downsizing? Stamp duty remains ridiculously high and is an outdated mode of taxation, as I have mentioned in previous blogs. Why should a homeowner sacrifice thousands of hard-earned pounds to this tax when the money can be better spent improving and extending their existing home? And what incentives exist for the older generation to downsize?
Ok, ok, I’ll step off the soapbox now. But we desperately need some creative thinking. For a nation whose economy is so intrinsically linked to its property market, we have managed to create a convoluted mess – a Gordian Knot so complex any attempt to unravel it results in political pain or predictions of economic doom and gloom from those with vested interests. An electorate pistol-whipped and punch-drunk after so much political turmoil is hardly likely to be in the mood to stomach bitter medicine for it housing ills.
Alexander the Great had a solution to the Gordian Knot; Theresa May’s gaze is elsewhere. But there is a slim hope that the election means some political intellect will be diverted to housing. Manifestos will have to be written; detailed policies will have to be considered; vested interests appeased. While this may not be the opportunity we were looking for, a window has opened for the mortgage sector to lobby for change. But we must act quickly. With just seven weeks till the election and others fighting for politicians’ attention, we must speak loudly and clearly.
Our parties will not sever the Gordian Knot during this election, but at least they may be forced to recognise the knot’s existence and the need to address it soon. Very soon.