The housing market needs a real plan for growth

There has no doubt been many commenting on Chancellor Jeremy Hunt’s recent Autumn Statement held a couple of weeks ago. We are a country, and an industry, facing numerous headwinds, including a crisis with the cost-of-living and affordability, housing, and economic growth. The challenge is that change doesn’t take place in a vacuum, yet a vacuum of decision and policymaking to adequately address the issues confronting the market is exactly what we face.

So much ado about nothing for the housing market, but at least alcohol duty was frozen until next year, so cheers to that, I guess.

Among the 110 measures in the Chancellor’s package aimed at boosting economic growth there was very little in the way of tangible support for stakeholders in the property sector. This being despite widely circulated rumours of cuts to Stamp Duty and additional support for first time-buyers, unfortunately these rumours came to little more than wishful thinking in the end, though there were a few carrots thrown in.

Such measures included an increase to the Local Housing Allowance (LHA) rate to the 30th percentile of local market rents, which Hunt claimed would provide 1.6 million households an average of £800 of support next year; a £110 million investment in “high-quality nutrient-mitigation schemes” over the next two years which could deliver an estimated 40,000 homes over the next five years; and an extension to the government-backed 95% Mortgage Guarantee Scheme for an additional 18 months until the of June 2025.

It's not exactly the support the industry was hoping for as the statement offered very little to address the concerns and pains of the housing market’s stakeholders.

Markets in limbo as uncertainty flexes

2024 is likely to be an interesting year for the country and the property market as our political class gears up for another election. What it is less certain is the impact that consumers in our market are going to experience when there are still several macroeconomic and external factors that could have a negative influence over the next several months.

Herein lies the problem. Despite the Chancellor’s initiatives to bolster economic growth, put money in people’s pockets and push for healthier housing-market conditions, the outlook appears decidedly less sunny when looking at the wider picture. Interest rates are currently at a 15-year high at 5.25%, which, whilst leading to higher savings rates, has also pushed up mortgage costs.

Research from the Building Societies Association (BSA) suggests that the average person in the UK has only £17,365 in their savings, and even worse, according to the FCA, up to a third (34%) of UK adults have either no savings, or less than £1,000 in a savings account. As the average deposit for a first-time buyer now is generally in excess of £50,000 there’s a huge affordability gap (and let’s not get into London, despite higher incomes, affordability is as much of an issue here, if not worse, than other regions).

Government statistics suggest that UK residential transactions in September 2023 were 19% lower than the year prior, a worrying trend given that Autumn 2022 was well after the post-Covid bump in house sales. We are certainly in a buyer’s market now with Zoopla’s latest House Price Index for November reporting a 34% increase in homes available for sale versus one year ago, with seller realism leading to an adjustment to pricing evidenced by the 5-year high discounts to asking prices for achieved sales moderating at £18,000 off the asking price.

That’s good news for those with a deposit saved up, but for tenants in the lettings market, the increasing burden on those savers to build a deposit is becoming weightier as average rents soar amidst low supply - the Office for National Statistics (ONS) provisionally estimates that average rents in the UK increased by 6.1% in the 12 months to October 2023, the largest percentage annual percentage point change since the ONS started recording this data series in January 2016. And the outlook is depressing as low availability of homes to rent will surely push rents up further in 2024.

Despite rent increases, landlord confidence is still at an all-time low, according the NRLA’s Q2 Landlord Confidence Index, fuelled by the macroeconomic environment. Many landlords are still considering either reducing or selling up their portfolios entirely over the next 12 months, with latest figures showing 43% of landlords are planning to sell, with just 10% planning to buy. The increase to LHA in the Autumn Statement may help to sooth concerns for some landlords although I doubt it will be sufficient in itself to improve confidence and bolster supply in the near term, much greater support for landlords is required to provide stability and supply to the lettings market. Current conditions are good for property auctioneers, but not great news for anyone else.

The politics of growth in 2024

All of these challenges are likely to be underlined by the political inertia that will transpire next year in the run up to the General Election, and it’s going to be quite the battleground. The Office for Budget Responsibility (OBR) estimates that economic growth is likely to face a particularly sharp downgrade in 2024 and 2025 over previous forecasts, with 2023 growth declining from 1.8% to 0.7% and 2025 growth declining from 2.5% to 1.4%. House prices will also be affected with the OBR forecasting that they could fall by 4.7% in 2024, and peak to trough between Q4 2022 and Q4 2024 could see nominal prices decline by 7.6%.

That might sound like good news to buyers, particularly in a buyer’s market, but sellers will be sensitive to these falls and may seek to pause their moves until better conditions, which are unlikely to shift until 2025. The housing market needs more confidence in order to thrive; that requires sound policy, but we are unlikely to see that in the short-term given that we are now on our 16^th housing minister since 2010 (and will no doubt see the 17^th next year). Given that the Conservatives have had 11 changes of housing minister since 2015, it’s perhaps surprising that they have ignored possibly the only MP in their ranks qualified for the job, MP Kevin Hollinrake who used to own and run Hunters Estate Agents – would it be too much to think that they might ask his views on housing policy?

I’ve suggested previously that housing policy should not be a bullet point on an electoral campaign, and that a more long-term, cross-party approach may be required to ensure stability and healthy growth in the housing market. We could all use a bit more confidence right now, and that requires a clear roadmap for growth and sound policy to ensure that homes are built, deposits are raised, and supply is plentiful.

There are some ways to go yet, but ultimately all we can do is remain optimistic, and that we, as an industry, continue to push the government of the day to listen to us and drive policy that can have a positive and lasting impact for everyone – because we all love our houses and housing is just about the only asset class that always goes up, because housing is in short supply, and because interests rates will come down… eventually.