"We’ve probably seen prices increase by 15% since the start of 2021 anyway, so this ‘fall’ in the context of recent history, isn’t actually a fall at all."
Understandably, there was a lot of noise generated by the recent Rightmove House Price Index for January which showed the average asking price in the UK increasing rather than following the pattern of other recent indices.
Now, of course, this is an asking price index and doesn’t reflect the price paid for a property and you might well add that it pays – publicity-wise – not to be following the herd when it comes to your data, but it perhaps gives us an inkling that the predictions of house prices falling right across the board in 2023 might not be so nailed on.
Indeed, last month, we suggested that falling prices weren’t quite the racing certainty that some were suggesting, not least because – in our view – demand is holding up, and supply, well supply remains dampened to say the least.
In a way, it seems like we are doing everything we can in this country – indirectly at least – to keep house prices from falling.
Help to Buy has had a slight stay of execution recently, but that is only to give the deals currently in the pipeline enough time to complete, and there is unfortunately nothing on the horizon on the same scale which we can see which will be a decent replacement for it.
It certainly seems ultra-counter intuitive that during, what can only be described, as a housing supply crisis you would agree to end one of the major schemes responsible for increasing the supply of new-build over the last decade.
Indeed, while the scheme has gone through a number of iterations, its last one was still very decent, with regional price caps and access available to first-time buyers. The Government could justifiably claim it was a success and that it was targeted at those most in need of this support.
But in a couple of months it will be gone, leading almost certainly to a further drop in new-build housing supply, albeit there are a number of other schemes hoping to fill the gap.
The closure of Help to Buy seems almost bizarre when the Government extended its Mortgage Guarantee Scheme at the tail end of 2022. A scheme which has been used by far fewer borrowers, and most lenders are not actually using it either, preferring to use more flexible private mortgage insurance or simply take the risk on their own balance sheets.
Just recently we spoke with a small housing developer, who effectively admitted they were currently land banking rather than build on the sites they owned. They are building but only in small numbers and when they really need to, put off by going full throttle by the fact construction costs have increased, particularly materials and there is also a significant shortage of manpower to get the builds done.
That is just one small developer, so you can imagine what the entire industry is currently holding onto, and the impact this is going to have going forward for new-build supply.
Between Q2 and Q3 last year, the number of housing starts by private enterprise fell by over 10,000, while those completed fell by close to 5,000. The Government’s own ambition was to build 300,000 new homes per year by the mid-2020s – in 2021 the figure was below 175,000, and even without the full figures for 2022, it was looking unlikely it would reach this figure, let alone get anywhere near to 300,000.
House prices are going to be held up by other factors as well, not least the continued purchase of council and social housing with no replacements being built, while at the same time we have a significant increase in the number of new households being formed in the UK. Can we truly say that in this environment, house prices are likely to fall by 20/25% over the course of this year?
We attended a recent conference where one of the big insurers presented on the market outlook. They suggested a fall of 5.3% for average UK house prices was likely in 2022, but from what baseline? Plus of course, we’ve probably seen prices increase by 15% since the start of 2021 anyway, so this ‘fall’ in the context of recent history, isn’t actually a fall at all.
What we would say is that the Government as a priority has to get a handle on new-build supply, and what replaces Help to Buy. Without even a similar level of new-build, we are going to put an even greater amount of pressure on the second-hand market, which in itself, is not coming to market in the numbers it needs to.
Combining continued Government intervention in this area, with a focus on Green, affordable homes has to be the way ahead. If it’s Green Help to Buy in all but name, then so be it, but the housebuilders will need incentives to build in anywhere near the numbers required.
If, as we suspect, we keep trundling along at the same pace, then don’t be surprised to see prices continue to move in only one way, and it’s not downwards.
