Gráinne Gilmore is Head of Research at Zoopla, the UK’s leading property resource. As an expert in the analysis of housing markets, we caught up with Gráinne to discuss what is happening in the housing market at present, and to ask for her insight on the landscape for investors and housebuilders.
How has the UK housing market performed over the last 12 months?
Reflections on the last year of the housing market are rightly overshadowed by the very immediate impact we are all feeling as a result of COVID-19.
After a promising start to the year, with a notable rise in demand for housing for sale after the General Election result, coupled with a rise in mortgage approvals, the market pivoted sharply once the effects of COVID-19 started to become clear in early March. In the sales market, demand fell by 70% after March 7th, when the scale of the COVID-19 pandemic emerged. The rental market was also affected, although to a lesser degree with demand down 57% during March.
However, since the end of March, we have seen this decline in demand start to bottom out. Sales demand has been rising modestly off a low base since the start of April, and rental demand was up 30% over the first two weeks in April.
In the rental market, we wanted to investigate where that demand was clustering, and found that across the UK, demand was focused on the same rental price brackets than before COVID-19 started to impact the market. In London however, there was a slight shift. Whereas in February, most demand was clustered around properties rented for £1,400 to £1,500 a month, in April, it was properties rented out at £1,200 to £1,300 that were receiving the most attention, although there was still interest in all other parts of the market too.
In terms of pricing, our latest Cities index (which also has all the latest real-time demand indicators) shows that average prices shows that average prices were up 1.8% on the year, ranging from 4.1% growth in Nottingham to a 2.5% annual decline in Aberdeen.
Average rents across the UK were up 2.4% in March, down from 2.5% in February, but up from 2.3% in December, according to our market-leading rental index. As well as the strongest rate of price growth, Nottingham also had the strongest growth rate for rents, at 5.9%, compared to a 2.1% decline in Aberdeen.
What are the predictions for the next 12 months?
It is hard to make predictions at present; much will depend on the medium-term and longer-term economic impact, and the effectiveness of the Government’s wide range of measures to try and head-off longer-term economic impacts.
The flexibility of the rental market suggests that it is poised to bounce back more quickly once lockdown restrictions ease. Rental deals have been happening over the last six weeks, with agents, landlords and tenants agreeing flexible moving in dates.
The sales market will pick up too once restrictions ease, with a level of pent-up demand coming back to the market. Browsing figures suggest rising levels of engagement with homes for sale as talk of end dates for the lockdown start to circulate. Agents also report sales that were days away from completing which will pick up once restrictions are lifted. Likewise, deals are still being agreed subject to contract during the lockdown. This trend will be even more pronounced for sales of properties where no one is currently living – and for properties where there is no chain holding up activity.
Another positive note is on supply – our data shows that vendors are keeping their homes listed for sale, and landlords are doing the same in the rental market. With no mass withdrawal of listings, there is plenty for future buyers and tenants to look at online.
What are some of the key challenges in housing development at the moment?
Much construction work was halted after the lockdown commenced, but a small minority of sites opened again during April. This trend is likely to pick up momentum in May, with several large housebuilders indicating that sites will reopen in the coming weeks and ensuring workers maintain social distancing.
Supply chains have also been interrupted in some areas, so it may take some time to get the flow of materials running smoothly once more. Given the scale of the shutdown, and the time it will take to get up to full speed once more, it is likely that the total number of houses built this year will be affected.
However, developers and housebuilders have shown that they can operate in challenging times, so delivery of housing will likely start to rise strongly sooner rather than later.
Once the market is up and running again, there are several other factors that housebuilders will be considering, not least the Government’s announcement of a new planning whitepaper, which will propose ways to make the system more efficient. The publication date is likely to be delayed, given the impact of COVID-19, but when it is published, it will examine planning fees, measuring timeframes on planning permissions and building, and expand the use of zoning tools.
If the plans help speed up the planning processes, then great. Housebuilders are very clear about the challenges in the current system, the time and the expense, and smaller housebuilders especially find the cost of planning a real hurdle. The suggestion that fees could be refunded if a planning appeal is successful might encourage fuller debates earlier in the planning process.
There are other challenges in housing development currently, such as labour availability and what that will look like in 5-10 years’ time. This will also have been affected in the short-term as a result of the outbreak, and in the short-term, there is the possibility that social distancing will slow progress on site.
Additionally, Help to Buy is set to change in April next year, and end in 2023 altogether, and what, if anything, will replace it? The mooted First Homes scheme is not the same shape to plug the gap. Offering homes at a 30% discount will allow more people to climb onto the property ladder, but housebuilders will definitely have an eye on the fact that, under current policies, their development economics will have to adjust to the end of Help to Buy.
Where are the opportunities for UK housing development?
I would be very keen to emphasise that, whilst there are hurdles for housebuilders at the moment, there are definitely opportunities on the horizon – albeit perhaps slightly further afield in light of the current environment.
If the government gets behind the proposed infrastructure upgrades, there is a real opportunity in opening up extensions into the South East. For the first time, we’d be seeing some of these areas linked to the tube line, which would open up a whole raft of development prospects. Moreover, if the government sticks to its guns around the Northern powerhouse, that too will be really beneficial. It’s a matter of scale, really; housebuilders are keen to develop, they just need the support around infrastructure. We saw the impact on house prices within a half hour radius of Cardiff when the Severn bridge became toll-free, so when that guarantee around infrastructure is there, the opportunities will follow. The support for the Oxford-Cambridge Arc, for this reason, will also be welcomed.
Then there are considerations around what will happen over the coming months and years given current events. Will the way we have been living and working over the last few months change the way we work? It is highly possible that more remote working will become the norm, and that as such people are willing to move further from employment hubs. Also, utilities such as broadband coverage will be considered as critical for future buyers. Housebuilders will be aware of these opportunities and will be weighing them up.
Mixed-use development has definitely become more mainstream in recent years and is recognised as a trend right now. There are whole teams of housebuilders, planners and architects now thinking about it! It makes sense as it mitigates risk for investors and satisfies different demand pools, all whilst creating a community in its own right. There are real residential opportunities for all types of people to be working with commercial investors, such as for schools or universities. It helps to change the way we think about how we build.
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