… Continued…

If both the above lines play out, 2031 will see an net shortfall of an additional 2.5M dwellings.

Impact of under-supply on prices

The recent report from the National Housing and Planning Advice Unit (NHAPU) in May 2009 highlighted the issue of supply on property prices, focusing on the lower quartile income earners, those most vulnerable in an under-supplied market. Taking three different projections for future house building, optimistic, pessimistic, median, they looked at the impact of each on house price to earnings ratio for lower quartile earners. Far from the 2007 peak being an aberration, prices relative to earnings in all three scenarios surpass the 2007 peak by 2020 (graphs from NHAPU report).  

International context

As we have covered in earlier blogs whilst the current price trends may be similar in the UK and USA, the fundamentals underpinning both markets are very different. In the US there is an estimated excess stock over requirements of over 1 million homes. This will work through the system but it will take time. In the UK the situation is almost the reverse.  Prices fell in the UK in response to a liquidity issue, certainly not over-supply. As this is addressed prices will inevitably start to climb again.

‘Safe as houses’ is an often over-used expression, but faced with the demand/supply in-balance and the recent price falls, investing in UK housing looks extremely attractive again