Autumn Budget 2018: Five charts on housing
Often some of the most interesting data released around the time of the Budget can be found in the policy costings and economic forecasts issued by the Office for Budget Responsibility (OBR).
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Among other things, they give a good guide as to the Government’s views on the future direction of the UK housing market. Compared to the guidance issued in March 2018, the OBR made a number of revisions to its forecasts, which we have outlined below.
Property prices
The OBR is forecasting house price growth across the UK of 19.8% between 2018 and 2024, an upwards revision compared to the forecast issued in March, albeit slight. Growth of 3.4% is expected in 2018, dropping to 3.1% in 2019 and 2020. Over the period 2021 to 2023 annual growth of 3.3%, 3.5% and 3.8% is forecast. The OBR added that it expects the ratio of house prices to annual earnings, which is returning to its pre-crisis peak of 7.3 times annual income, to remain fairly stable over the forecast period.
Download Knight Frank’s Housing Market Forecasts here.
Property transactions
The OBR is forecasting market activity will remain fairly subdued in the short-to-medium term. The total number of property sales across the UK in 2018 is expected to reach 1.18m, around 3% less than the 1.24m that were recorded in 2017. Over the longer-term, the OBR is forecasting that market activity will pick up, reaching 1.34m by the end of 2023. One factor underpinning this forecast is an expectation that transactions will increase gradually to a level consistent with the housing stock turning over once every 22 years – the average turnover rate before the pre-crisis housing boom.
While activity is expected to rise over the forecast period, it will remain below pre-crash peaks in 2006 and 2007, when around 1.6m transactions were reported annually.
More information on housing market activity can be found in the UK Residential Market Update here.
Stamp Duty
In November 2017, Philip Hammond abolished stamp duty for first-time buyers of properties worth up to £300,000, while those paying up to £500,000 are only charged on the part of their purchase over the new threshold. Yesterday (Oct 29th) he extended this to first-time buyers using shared-ownership schemes.
No further changes were announced to the rates, though there was confirmation that the government will publish a consultation in January 2019 on a SDLT surcharge of 1% for non-residents buying residential property in England and Northern Ireland.
Despite this, the OBR has made some substantial revisions to its previous forecasts for receipts from residential transactions, especially in the short-term, as shown in the chart below. This is likely to reflect the recent slowdown in housing transactions. SDLT from residential properties is forecast to raise £8.2 billion in 2018-19, down from the £9.3 billion forecast in March. In 2019-20, forecast revenue is £8.7 billion, down from £9.6 billion. Revenue is expected to climb every year until the end of the forecast in 2023-24.
For more detail on the impact of stamp duty on prime markets read our latest Prime London and Prime Country reports
Housing starts and completions
New private housebuilding starts and completions have been steadily rising for the past few years and are comfortably higher than their post-crisis lows. In 2017, there were 163,933 private housebuilding starts and 159,141 completions. The OBR is expecting that these figures will remain fairly flat over the coming five years, as shown in the chart below.
Elsewhere, an extension of the Help to Buy Equity Loan was announced in the documents accompanying yesterday's Budget, to run from 2021 to 2023, but only for first-time buyers. Capital value limits will be imposed by region from 2021. The Letwin Review into housebuilding was also published with the government planning to formally respond to the planning reform proposals it recommends in Feb 2019.
Download our Residential Development Land Index for the latest news on housebuilding here.
Net additions
The number of net additional properties added to the UK housing stock – a figure which take into account new housebuilding, conversions, change of use, and demolitions – is expected to be 203,000 in 2018, rising to 246,000 the following year.
The figures suggest that new housing delivery will remain below the 300,000 target set by the government over the forecast period.
Download our Housebuilding Report for housebuilders’ views on delivery here.