As the UK property market hots up again, have policymakers succeeded in reigniting animal spirits? Bill McQuaker, head of multi-asset at Henderson, shares his thoughts.
For the majority of UK investors, the world has finally taken a turn for the better. Yes, the FTSE 100 has delivered a total return of more than 60% over the last four years, but for many people that hardly matters. The current generation of investors care much more about the behaviour of the property market than they do about what goes on in equities and, after five years in the doldrums, residential property is suddenly showing signs of life.
The chart below (on page 2) shows the regional breakdown from the Royal Institution of Chartered Surveyors’ (RICS) July house price balance report alongside May’s figures. It reveals a dramatic improvement.
Significantly, the upturn is broad-based, with every region showing prices rising: this is no London-centric phenomenon.
Have policymakers reignited consumer confidence in property?
On the move
The commercial property market is also on the move, with prices picking up and strong flows into property funds for the first time since 2007. Of course, the UK is not the first country to witness this turn of events. A similar story began to unfold in the US about 18 months ago and continues today.
It is probably too early to say with absolute certainty whether these developments will turn out to be significant. What is certain, however, is that, until now, British policymakers have singularly failed to reignite ‘animal spirits’ in the economy.
Suddenly, seemingly out of nowhere, that looks to be changing. And if highly stimulatory monetary policy has finally gained traction, we should not be too surprised if it proves to be powerful and self-reinforcing. Certainly, there is pent-up demand for housing and both types of policy – fiscal and monetary – are being tweaked to encourage its release.
The government’s Help to Buy scheme is already underway and is expected to be significantly expanded from January 2014. Meanwhile, the Bank of England (BoE) has sought to assure homebuyers that interest rates will remain low well into the future. Traditionally, housing is the blue touchpaper of the UK economy. Right now, every effort is being made to light it.
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