Saturday, October 23, 2021

UK house prices still not meeting demand, economists say

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Image copyright Channel 4 Image caption Construction has been restricted by loans only granting use on larger than average developments

More homes are being built in Britain, but they are far too expensive to keep the market at a robust level, according to Fannie Mae.

Analysts at the US bank analysed UK house prices and the number of homes built over the past two years.

They concluded that the UK was still going through the sort of structural imbalance faced by the US economy between the number of potential buyers and the supply of suitable houses.

Their forecast: houses prices will not keep pace with wages through 2022.

In the UK, construction has become hugely restricted by mortgage lending only being offered to build houses on larger than average sites, housing associations are unable to take on any more properties.

Despite an eight month stay at the Bank of England last winter, BoE governor Mark Carney this week reassured that he had not “flunked” his job and, in turn, has been urged to make sure that house prices do not stay high for too long.

Channel 4 News has reported extensively on the latest housing markets figures which showed house prices had fallen for the first time in six years in July, continuing a downward trend since the start of the Brexit vote in June 2016.

When that slump in house prices began at the end of 2015, we asked Fannie Mae’s UK head of research, Tony Hooper, whether it might be short-lived and, while he stressed that predictions of further downturns were “speculative” and his research had shown house prices would remain at fairly flat levels for some time, he did warn that the level of construction could be too limited for a long time, which in turn could keep a lid on demand.

Below is a chart that shows the numbers of homes built each year in the UK as well as UK GDP growth and unemployment since 1981.

Image copyright Channel 4 Image caption GDP and house prices are linked.

Image copyright Channel 4 Image caption

Pointing out that the US had another period of rethinking where growth should take place, Mr Hooper says that the areas that had traditionally enjoyed higher levels of property development – such as London and the south east of England – had now pretty much reached the limit of how many home building is politically attractive.

Mark Carney said on Tuesday he will, however, be “upgrading” his assessment of the UK housing market and how strong it remains to fall into recession.

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Around 130,000 more homes are needed just to allow everyone in the UK to have a home they can afford, he says.

Mr Carney says he believes that the UK does have adequate housing supply but thinks it is now important that the government creates a much more level playing field by increasing the number of homes being built.

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