Posted on: May 24, 2023
Why are property prices and rents still so high?
11-07-2023 Correct at time of publication, but subject to change.
It is a fairly constant media narrative that property ownership is beyond many in the UK and that private tenants are exposed to ever increasing rents.
Home ownership. Quite simply as a country we just don’t build enough houses. Historically there have been numerous targets set by successive Governments and none of them have been met. This is not a party political point as both Governments that have been in power in the last 30 years consistently failed to build sufficient housing including social housing. The 1960s saw the largest number of new homes built at over 3.5 million. Since then, the number of new homes built each decade has declined and the latest figures show that just over 1 million new homes were built in the 2010s – the lowest level since the war.
According to a Parliamentary committee paper published on the 7th of December 2022 there were 157,000 home built against a target of 180,000 for 2021. In 2022 this build increased to 204,530, however the government stated that 300,000 homes a year would need to be built to address significant shortfalls in previous years. So we are an increasing population with a new housing supply that is not keeping pace. The Big Issue reported at the current target of 300,000 new homes per year it would take 50 years to clear the backlog.
There has been new press coverage that states that the current Government is going to withdraw the 300,000 target pretty much as soon as they have introduced it.
This habitual failure to hit targets has seen home ownership drop from 70.9% in 2003 to around 64% in 2022.
Rental market. The same goes for the rental market. A lack of new homes being built for both housing associations and Local Authorities as well as private landlords.
But there are other factors on top. It is common knowledge that the public rental sector has been neglected and under invested. From the Right to buy sales in the 80’s which promoted home ownership, but reduced the supply of local authority council house stock. And then the subsequent lack of reinvestment, which has led to a reduction in supply that has existed ever since. This has forced many tenants into the private rental sector.
In the 2010’s the demand for investment property from private landlords increased considerably and this became a further inflationary pressure on house prices. Residential buyers were being squeezed out by landlords who did not have face the same affordability assessments from lenders. The Governments answer to try to protect residential buyers was to make investment and buy to let ownership less attractive with tax increases on stamp duty and rental income.
Further pressure on landlords was brought by legislation on Energy performance and tenants’ rights. And increased tenant protection is planned which can only deter landlords further. I am not trying to defend landlords here. Tenants need to be protected, but the more they are protected the more landlord exit the market, supply is reduced and rents go up!! It’s a vicious circle!
And to add insult to injury for landlords are experiencing significantly higher interest rates meaning profit margins are being squeezed and in some cases landlords are facing a loss every month.
According to gov.co.uk there are 2.74 million unincorporated landlords in the UK that report income to HMRC. In 2022 according to the Guardian 35,000 more buy to let properties were sold than purchased. With inadequate social housing to compliment this the only way rent are going is up. And rent caps will just see more landlords sell up and exit the market as they won’t be able to balance their books.
So why not just build more houses?
It is easy to blame successive Governments for these failure and it is fair to say that they must shoulder a significant portion of the blame. But if it was that easy then I am sure the situation would not be as serious as it is. Getting houses built sees many challenges…
- Building houses and in particular social housing requires Government money, and there is very little of that around at the moment post Covid-19 and with the economy teetering on the brink of recession.
- UK house builders are facing building cost inflation of 15 to 30% depending on which article you read. With reduced demand because of interest rates they simply can’t sell enough houses to warrant upping capacity in the current economic climate.
- And then there is planning. From personal experience even small development projects are difficult to get approval for. Some people argue that Local Authorities are particularly obstructive in getting projects approved, preferring to reject, letting an appeals officer outside of the Councils jurisdiction to make any decision. We have a number of small developers who are clients of ours and they all complain at the disincentive to provide housing because of the difficulties in obtaining planning.
- And then there are the so called Nimby’s (Not in My Back Yard). They have a reputation for stopping projects for all number of reasons. For balance we need people to challenge developments and stand up for good quality housing in the right areas, with the correct green credential and infrastructure. But by the same token many development project don’t get off the ground because of select band of residents that don’t want development at any level. Do these people then moan that their children can’t get on the housing ladder, I don’t know!?
- And then there are land constraints with the need to protect green space. Tilehurst and Purley on Thames is a good example of villages that are squashed up against an Area of Outstanding Natural Beauty. With limitation on development in these areas there just isn’t the space to meet new targets.
So house prices continue to rise in the long term. The answer is to build more houses, the reality is “It’s not quite that simple”.
