The fear of a mansion tax and general uncertainty preceding the May election stalled house sales and building. Prices have risen since May, emphasising demand.
On the heels of the Conservative’s definitive election victory in May 2015, estate agents and large home owners breathed a sigh of relief: there would likely be no mansion tax as proposed by Labour. Sales of homes, especially in London, began to pick up within days. The Guardian reported on June 1 that “boom conditions are back in the UK housing market and prices look set for a new surge before the end of the year,” crediting the election outcome for galvanizing buyers and sellers.
But do sales and price increases mean that more homes – particularly those in the lower and middle price range – will be built? Can the UK get back to building the quantity of houses that will help alleviate the crippling price rise of homes for sale, as well as rising rent? Can the key players involved in development – lenders, developers, property fund partners, builders – join forces to serve the estimated one million households that need a place of their own?
A property fund partner will explain there is not a simple relationship between demand, pricing and supply – the classic relationship that is (usually) fundamental to economics. There’s a little more work (read: bureaucracy) involved, as most seasoned people investing in understand.
When developers and homebuilders want to go about the business of constructing residences, it’s really only after specialists in planning effectively convince local councils that the homes are a net-positive for the community at large. Investors in in essence back those specialists, who identify land that is ripe for conversion to development. This approach to alternative investments generally occurs where housing demand is growing – often due to increased employment in the vicinity.
The Home Builders Federation weighed in regarding their hopes for a house building acceleration after the election. The organisation notes several key factors that should influence the Government in its policy formation. They include:
Building is up in 2015: 40,340 new homes were started in the first quarter of the year, the highest such number of any quarter since 2007.
Building was already on the rise in 2014: The new home starts, numbering 137,310 last year, represent a 10 per cent increase over 2013.
Average house price is now £193,048: Mortgage lender Halifax said in May that this represents an 8.5 per cent rise over a year ago.
Completions still short of need: England needs to build 230,000 homes each year, and even if the strong new start building numbers continue apace (which would be about 161,000 homes) it would fall short of the need for this year alone by 70,000 homes. Across the UK, the existing shortage is believed to currently stand at one million homes.
The Royal Institute of Chartered Surveyors (RICS) considers this continued shortage and rising prices a “national emergency” and said as much “in unusually forceful language,” according to a mid-May report (carried by Reuters news agency). The RICS statement was directed at the Government, but participants in should take note. Housing wasn’t the most prominent issue in the May elections, however the price of housing will almost certainly grow in importance in the near future. A report by the surveyors predicts a price rise of 25 per cent within just the next five years.
Whether an investor choses alternative funds or traditional stocks and bonds, the risks and relative positions of those investments should be made in balance with individual family wealth-building strategies. Speak with an independent financial advisor before taking a significant position.