The property market has remained subdued even with the slight uptick in the annual house price growth during November. The prices increased by 1.9% compared to a year ago which is up from the 5-year low of 1.6% seen in October. These figures have been provided by the building society.
The chief economist of Nationwide, Robert Gardner, has stated that how the broader economic conditions evolve will have a large impact. In the short-term, the household budget squeeze and the uncertainty of the economic outlook will continue to lower the demand for property. The fact that borrowing costs are still low and the unemployment rate is at a 40-year low will not have much impact at this point.
If in the months ahead, the economic uncertainty were to lift and rising employment remained, there could be a pick-up in activity within the next year. The household income squeeze is already starting to moderate. Policymakers have also indicated that interest rates are expected to rise at a moderate pace if the economy performs as it should.
Changes in Housing Supply
The housing supply picture has also improved over the years. After the financial crisis, there was a fall of almost 60%. In recent years, there has been a great increase in construction, especially for serviced offices in Woking.
In the year 2017/18, new build construction in England reached 195,300 which is 3% below the levels of 10 years ago. The picture improves more when the number of larger houses which have been converted into apartments is taken into account. There is more improvement when the change in use of properties are considered which are former offices which have been turned into residential buildings.
When using this broader measure, the net addition to the housing stock is now only 0.6% below the levels of 2007. The change in uses of buildings have provided a major boost to the housing supply in recent years.
A major factor is this is the change to government policy in 2014 which now grants automatic permitted development rights for converting offices into residential property. It is important to note that the rate of change in use has slowed in the last year. However, it still accounts for approximately 30,000 dwellings, which is around 70% higher than the level 10 years before. There are some areas such as Bristol and Nottingham where change of use has accounted for half of the homes added to supply stock in the last 3 years.
Where is Supply Increasing?
In the last 10 years, there has been an increase of 1.9 million in total housing stock in England. This is an increase of 8.5% when compared to the relative stock of 2007. The strongest growth has been in the South West and the East of England.
These areas have also seen relatively strong growth in house price over the same period. This suggests that the supply is a response to the house price signals.
Regions such as the North West and North East have seen house price levels similar to that of 2007. In these areas, the supply growth has been modest. In the South West, there were an additional net 26,800 dwellings. The East Midlands saw relatively strong growth with a boost to new builds and a total of 21,400 dwellings added to housing stock.
By contrast, London has seen a slowing in the net additions to their stock in the last year. This was 20% lower in the last year compared to the year before. This has been linked in part to a reduction in new build completions as well as lower change of use. This is also likely a response to the market conditions which have seen a modest fall in house prices.