With the recent pressures on lending, and interest rates showing little sign of falling, at least in the short-term, home buyers are finding it harder than ever to afford to purchase for the first time, or move.
Mortgage payments account for a higher proportion of take-home pay than at any time since 1990, the last property market ‘crash’.
Demand for private rented accommodation has seen a marked increase in the wake of house price inflation, resulting in a buy-to-let boom.
Individuals and professional landlords, who often take significant blocks of property within a new development, have been quick to jump on the buy-to-let bandwagon. This has pushed up values in the lower price brackets, putting these properties further beyond the reach of first-time buyers and fuelling the inflationary spiral.
Prime Minister Gordon Brown recently outlined his programme for creating 3 million new homes by 2020, 2 million of these by 2016. This will require a massive building programme to create 240,000 homes each year.
The stated aim of Prime Minister Brown’s policy is to stem the tide of house price inflation and provide a higher proportion of affordable housing.
Can these targets bring affordability back to the market place? Are they achievable?
It would certainly be possible to create the desired number of new households, providing Planning Regulations were flexible enough to allow sufficient suitable land to be released.
But whether these homes will be of the type and in locations attractive to purchasers is another question.
In recent years, emphasis has been placed on the creation of large numbers of new flats within urban and suburban locations.
This has led to oversupply in some areas, levelling off or reducing prices. If distortions continue as a result of Planning Controls, rather than allowing developers to provide the mix of accommodation to satisfy local demand, this position will worsen.
At the same time, lack of sufficient new homes in other price brackets will ensure that inflationary pressures push up prices here too.
And what of the location of these homes? Over 80% of the proposed new development for London will occur in the East Docklands and Thames Gateway areas.
This regional development is directly linked to the 2012 Olympic Games and the demands for accommodation that the Games put on London. Whether this will be translated into long-term demand is another question.
Amidst such uncertainty, one thing is clear. Delivering the volumes of accommodation needed to meet Government targets will only be possible with greater use of Modern Methods of Construction (MMC), which play a growing role in construction.
MMC are usually geared to providing more energy efficient solutions, and therefore also contribute towards the Government’s ‘green’ agenda.
However, until MMC are more widely accepted and the cost-savings associated with mass production start to come through (carbon-neutral housing is more expensive to produce, which adds to cost pressures ) affordable housing will be more difficult to achieve.
Government targets are technically achievable, but are unlikely to provide the mix of property types and sizes required to satisfy consumer demand across the price ranges.
The result will probably be continuing house price inflation above the general rate of inflation, albeit not at the levels seen in recent years.
The imbalance caused by interference in natural market forces through Planning Regulation controls may result in declines in value in some areas, and disproportionate increases in others.
The trick from an investor’s perspective will be to spot those ‘hot-spots’, and those who succeed will continue to profit from the UK housing market.
David Dalby is chief surveyor at Advantage and a member of the Council of Mortgage Lenders Valuation Panel
The views expressed in this article of those of its author and do not necessarily represent those of IFAonline or any other Incisive Media affiliated organisation.
Have Your Say:
"Then perhaps the CML should place a little more emphasis on the struggling Homebuy Schemes and place some pressure on the Government over Stamp Duty. In order to purchase a 25% share of a property valued at over £250,001 a 3% levy is added and do the Lenders want to advance that?? No they do no." David Castle, CTAB Mortgage DeskIFAonline
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