Friday property news update - 21 May
The supply crunch, the everything rally and how to fix Britain's towns
4 minutes to read
The supply crunch
UK house prices surged 10.2% in the year to March, the fastest rate of growth in 14 years.
A supply slowdown is proving a big contributor to rising prices as demand springs back following a year of lockdowns. Uncertainty over new Covid-19 variants, the logistical constraints of home-schooling and an expectation that the original March stamp duty deadline would be missed meant there wasn’t the usual post-Christmas surge in property listings this year, as explored by Tom Bill last month.
While this imbalance is likely to continue into the summer, a short-term distortion caused by the pandemic should not be confused with a longer-term trend. Current levels of price growth are likely to prove transitory.
As more properties come onto the market and once the stamp duty holiday ends, price growth will slow. We forecast 5% growth for UK property prices in 2021, with current activity levels normalising as the post-pandemic landscape materialises towards the end of the year.
The everything rally
If it feels like you've heard that before it's because you have. Central bank officials, particularly from the Federal Reserve, have for weeks been seeking to sooth markets rattled by creeping inflation. Imbalances in the supply chain and labour market caused by the reopening of economies should resolve themselves once normality settles in, numerous officials have said in recent weeks.
Whether all this really is transitory is the biggest question in economics. Volatility peaked last week when it emerged US consumer prices were climbing at their fastest pace since 2008. Minutes from the latest Fed meeting suggest officials are now thinking about dialling back support for the economy.
There are now numerous signs inflation is gathering pace in the UK. The consumer price index rose by 1.5% in April, the highest reading since March 2020. A new CBI Industrial Survey shows a balance of +38% of manufacturers expect to raise prices over the next three months, the highest reading since January 2018.
The Bank of England maintains these signals will pass. EY ITEM Club believes the Bank is likely to hold off from acting throughout 2021, "but there is a growing possibility that the Bank could tighten monetary policy in 2022 initially through edging interest rate up from 0.10% – although, currently, early-2023 seems more likely."
Interest rates and house prices
Sir Jon Cunliffe, the Bank of England’s deputy governor, tells this morning's Times that there are reasons to believe the property market "will not fall back” as the Stamp Duty Holiday is withdrawn and that loan-to-value caps on lending are likely to begin limiting rising prices.
The Bank currently caps the amount of housing debt that a lender can issue at more than 4.5x a borrower’s income at 15% of its total mortgage lending.
The interview confirms that officials now believe interest rates are behind rising prices, rather than supply. The Bank's thinking has been moving in that direction since this 2019 paper by the Bank's researchers John Lewis and Fergus Cumming. Mr Cunliffee adds:
A one percentage-point increase in rates, “all else equal, reduces house prices by around 2% to 11%, with the majority [of analysis] suggesting a drop between 6% to 9%.”
Fixing Britain's towns
The UK's surging house prices aren't uniform. Rural locations and satellite towns have been on the receiving end of an influx of former city dwellers untethered from a five-day-a-week commute.
London's retailers are suffering as a result, but could the reverse be true of those in failing UK towns? Might the pandemic have changed the economics for UK high streets for the better, fuelled by the arrival of new affluent residents?
Anna Ward tackles this in a new episode of Intelligence Talks. Anna speaks to Bill Grimsey, author of the Grimsey Review on how to revive UK high streets, to find out what a successful future town might look like. They discuss how to undo 'clone towns' to create places without cars that are full of experiences, open spaces, commerce and shops that are more likely to be independent businesses that support the local brand.
Anna also speaks to Ben Bolgar, Senior Design Director for The Prince’s Foundation for Building Community, and Cameron McDonald, senior geospatial analyst at Knight Frank, about the importance of creating walkable towns and ending car-dependency. Six months on from the publication of The Prince’s Foundation report into sustainable development and walkability, they take a fresh look at the findings as the UK population emerges from a third lockdown and remain focused on their local neighbourhoods.
Listen here, or wherever you get your podcasts.
In other news...
Milan, Lisbon and…Greenwich: Meet the London borough trialling smart homes at scale.
Elsewhere; corporations grapple with signs of overheating US economy, US floats 15% global minimum tax on corporate profits, skyscrapers rising next to vacant towers mark a new City of London, it's a tenants' market in Dubai and Abu Dhabi, Barry Diller’s $260m public park, 'go into battle' for the City of London, St Modwen agrees to £1.2bn Blackstone takeover, the latest on WeWork, UK consumer confidence is back at pre-pandemic levels, and finally, Sunak ready to reap windfall from economic rebound.