Decisive election result could spur new build revolution

27 Apr 2015

Supply and demand - the simple fundamentals of any market and the determinants of pretty much everything that follows. Of course, economic and business theory will go into far greater detail and complexity, but everything must have a starting point.

As we approach the general election, I'm wondering if the supply side of the housing market has ever been under the type of scrutiny we are seeing now. It's rather interesting to me seeing the major political parties spell out how deep the crisis is in housing supply and what they will do in order to make housebuilding a born-again staple of the UK market.

It's as if the low levels of new housing being built have suddenly become a major issue rather than a growing problem over the last couple of decades. Given the low level of new homes built, coupled with growth in households and population increases, it can surely come as no surprise that we find ourselves in this current situation.

But here we are and one wonders if the next government - whoever they might be - will be able to deliver on their election manifesto commitments and up the housebuilding levels over the next parliamentary term.

One hates to say it, but it is an issue which is crying out for ‘cross-party consensus' and not more political machinations and dabbling around at the edges. A competent and deliverable housing strategy has been as rare as agreement across the Dispatch box in recent times, even when this is one issue that should transcend party politics.

New build numbers are not the only supply issue having a major impact at the moment. It would seem that 2015 (so far at least) is being defined by a lack of properties being put on the market and, with demand to purchase showing no signs of falling back, this is having a clear impact in terms of increased prices.

Rightmove's latest asking price index this month suggested that the average UK asking price has risen to a record high because of the shortage of housing stock coming to market. It has now reached £286,000 - £4,000 more than the last record price which was hit in June last year.

Much of the reticence of sellers to put properties up for sales is down to a case of pre-election jitters, given uncertainty about the result, according to Rightmove. However, there are other factors, notably the growth in buy to let and the fact that landlords are much more likely to hold onto their properties rather than sell.

The upshot of this is likely to be less housing transactions and those estimates of gross lending levels easily leaping past the £220bn mark this year, are I suspect being rewritten as we speak. Which is not to say that the second half of 2015 will automatically follow the same pattern, one must think that a decisive election result will have an impact and we may even start to see the beginnings of the much-promised new build revolution.

In the meantime, the positive for the intermediary sector is that, directly as a consequence of the Mortgage Market Review's impact on retail and branch-based sales, intermediaries will take a larger share of mortgage distribution this year. The potential impact of any tangible drop in transactions might well be at worst, negligible.

The one area of supply which can be counted on is the supply of mortgage (and related) advice. This, married with borrower demand, means the intermediary market will benefit from today's market conditions and those in the future.

Bob Hunt

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