Stephanie McMahon
Head of Research
In some ways it doesn’t make sense to refer to a “UK residential market”, the disparities across housing types, price points and geographies can be immense and are often impacted by differing factors.
In some ways it doesn’t make sense to refer to a “UK residential market”, the disparities across housing types, price points and geographies can be immense and are often impacted by differing factors.
After several years of substantial house price inflation, the most expensive part of the market, namely, prime central London (PCL) has been heavily disrupted by recent taxation changes. Since 2012 there have been multiple fiscal changes including the Stamp Duty Land Tax (SDLT) increase on £2m plus properties, the introduction of ATED, the replacement of Wear & Tear allowance, and most recently the 3% SDLT on additional homes due to come into effect on the 1st April 2016. Whilst not exhaustive this list exemplifies the extent that governance is targeting housing. It has resulted in a significant downturn in sales volumes in PCL over the past 18 months, specifically in the higher price bands. In Q4 2015 volumes were down 17.2% compared to the five year quarterly average, and pricing flattened throughout 2015 – indeed we expect zero growth this year and 2.5% in 2017.
Moving away from PCL to the wider London market, it is worth exploring the new build market where volumes of both supply and sales have ticked up over the past five years. 2015 saw 27,000 sales, and in the region of 18,000 completions. In terms of the housing required to meet London demand, estimated to be 50,000 units per annum, these numbers will not touch the sides. However, there are three concerns; first it is challenging to measure the potential for ‘flipping’ i.e. off plan buyers selling on and flooding the market with supply; secondly whether the development is geographically aligned to demand – in Greater London most construction is in zone 2, which is less affordable; thirdly, and highly related to point two, if the supply is affordable – our analysis of professional London wages versus costs would indicate that very little of current new build is within the budget.
Outside of London demand side policies such as Help to Buy have resulted in more transactions, and according to the DCLG increased supply. The policy to date has been of most benefit to those metropolitan areas outside of the South East, and it is currently debatable if it is assisting locations of least affordability. The question of supply is fundamental across the UK, and housing delivery numbers are not close to what is required. At the present time there is no reason to believe that volumes will increase substantially. The demand side challenge is not just one of population growth it is also the way we are living; more people live alone, there is limited downsizer housing for equity rich empty nesters, and we are living longer.
Although the UK residential market may not be a homogenous place, there are elements in common across places and price points, namely affordability and supply. It might be time to introduce some new options – micro mansions which are small well, designed homes; increased density in our cities; and well planned, well-built house and flat rental stock on a large scale.