Have you heard about the UK Housing Market Crisis? Do you know why the prices of houses are so high? Are you familiar with the prognosis for the future? If not, check out our article with all the information you need in order to understand what is really happening on the Housing Market.
For the past months, various media have been alarming about the housing crisis. Indeed, throughout the past few years, the prices of houses in the UK have been constantly rising. But can we really talk about the crisis here?
To really understand what is currently happening on the market, we want to focus today on an in-depth analysis of the reasons, effects and solutions for the housing situation in the UK. Do you want to discover it with us? Let’s start!
According to the Office for National Statistics, the average house price in the UK in 2013 stood at £167,716. Today this number is closer to £264,244, which shows an enormous change in less than 10 years!
Have you ever wondered how much you would need to pay for a house in each UK country? When we look at the chart below, we can observe that homes in England are much more expensive. In August 2021, the average price was:
£280,921 in England
£194,575 in Wales
£180,832 in Scotland
£153,449 in Northern Ireland
However, the crucial indicator to analyse the changes on the housing market is the annual house price rate. These numbers show us how the UK average house prices have been changing over the years.
In August, the most recent number provided by the Office for National Statistics was 10%. This percentage is only slightly lower than the annual house price rate of change before the crisis in 2008!
Keeping in mind that one of the reasons for the Great Recession was the collapse of the housing market, the current housing crisis becomes even more serious. But are we really in the same situation as 13 years ago? To find out, let's focus on the reasons for the constant price growth.
In the economy, there are two indicators that shape the prices. It is supply and demand. Currently, there are not enough houses on the market compared to the number of people who are willing to buy them. It means that the demand exceeds the supply significantly, causing the prices to grow.
According to the Places for People Group from Cambridge University, the reason for this imbalance might be the government's failure to build enough homes to meet the market demand. So, instead of keeping this ratio on the constant level, they let the gap grow, which caused a steady increase.
Here is another crucial question: what factors make the demand grow and keep the supply on a constant (or not high enough) level at the same time? As in every socio-economic phenomenon, it is hard to distinguish a single reason. However, we will try to determine the leading factors:
Changes in Society
Compared to the generation of our parents or even grandparents, there are many changes in the way we live, spend our free time or work. For example, more and more people prefer to live in the suburbs than in noisy and polluted city centres. Also, younger generations desire to build their own houses and live without their parents.
Another factor is the global pandemic. Many people started working remotely and realised that they did not have enough space at home. Also, when going outside the house was strictly forbidden, families have rediscovered the beauty of home gardens.
Last but not least, it is essential to highlight the fact that we live much longer than our ancestors, so the need for building new places of residence is only growing. All these factors increase the demand for new houses. But what about the supply side?
External Challenges for the Industry
COVID-19 had a considerable impact on the supply side as well. Multiple lockdowns and delayed works in different countries interrupted the supply chain, consequently increasing construction materials prices and the costs of new investments.
Another external factor that hit the construction industry was Brexit. Insecurities connected with the legal aspects prevented many companies from new investments. Also, companies lost their workforce as around 10% of the construction employees, and even up to 50% in London, were non-UK nationals. Consequently, some businesses were left without skilled and experienced workers.
Read more about how Brexit affected construction.
As we stated before, the annual house price rate is similar to its state from 2008 before the Great Recession. So should we be worried that history will repeat itself and we will soon have to deal with the collapse of the housing market?
The answer here is quite complex. On one side, higher prices also mean increased inflation. Consequently, the country should introduce higher interest rates to stop the inflation rate. Raised interest rates mean higher costs of mortgages, which should decline the demand in the long term (as fewer people can afford new houses).
However, to develop the economy steadily, the government should not be interested in only cutting the demand. Instead, the market should strive for balance, as demand and supply on the higher level mean more investments and a higher GDP rate. So what should be done to save the housing market from crashing?
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In many articles, you can find information that we should build faster and better to deal with the housing shortages. Even experts advise the use of modern methods of construction or strategies to reduce costs. But unfortunately, these are only short-term methods and not real solutions.
To really fix the UK housing market, the government should actively participate in changes. It means that both local and central authorities should create programmes that help the industry for real. But, unfortunately, some of the already created help schemes look good only on paper.
That was a case of a target: 300,000 new homes per year. After some time, it turned out that these great-sounding plans are almost impossible to obtain in the nearest future due to many difficulties. According to Propertymark, this target will not be achieved at least by 2028. And the UK's economy needs solutions now.
To really help the industry, the government should:
Conduct more profound market research to better understand the real challenges and needs from both supply and demand.
Review the existing help programmes and how they are executed in real life.
Provide more affordable housing with social grants to make them more accessible for real citizens.
What will the Future of the UK Housing Market be?
Nowadays, it is almost impossible to predict the future. After the global pandemic and Brexit implications, the market is still in the process of adapting. That is why we can find various future analyses on the Internet: from the best to the worst-case scenario.
According to Halifax HPI, the average house prices will continue to rise in the future, as due to inflation, the material costs or construction costs will also be growing. Some forecasts even state that the house prices will continue to rise even up to the beginning of 2023.
On the other hand, there are also predictions of a decrease in demand. Even though the Monetary Policy Committee kept the low-interest rate in November, economists estimate that the rate will go up after the next meeting. That would mean higher mortgage rates, indicating a decrease in demand and probably, lower prices in the future.
How about you? Do you feel the impact of the UK housing market crisis? Did you plan to buy a house, but the costs are starting to exceed your budget significantly? Or maybe, you manage a construction company yourself and feel the challenges of the rising cost of materials and the lack of experienced workforce?
Let us know your thoughts!
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