Low Supplies Keep House Prices High But New Homes on the Rise


November 2015

Low Supplies Keep House Prices High But New Homes on the Rise

The latest figures from the Royal Institute of Chartered Surveyors show that for what is now the ninth consecutive month, the number of properties appearing on the market has gone down.

Dwindling supplies of houses cause something of a vicious cycle in the housing market, as potential sellers become less and less likely to actually sell, given tough market conditions and difficulty in finding somewhere to move to, further entrenching the initial problem.

What hasn 't been falling though is demand from buyers, and so this, coupled with the short supply, is causing prices to go up, with nationwide average prices increasing now for three consecutive months. The consensus among Rics members was that prices are likely to rise by around 4.5% a year until 2020, bringing the average price for England and Wales to around £42,000 by the end. The same problem is facing rental accommodation, with demand consistently staying above supply across the country.

"It is hard to get away from the issue of supply when it comes to the current state of the housing market" said Simon Rubinsohn of Rics. "The legacy of the drop in new builds, following the onset of global financial crisis, is now really hitting home, with both the sales and letting markets continuing to show demand outstripping supply on a month-month basis."

Rics reported, in line with findings from mortgage lenders and information from HMRC, that sales were actually going up. London and the East Midlands were the only areas of the UK that did not see an increase in sales for October, according to Rics ' report.

Despite Rics ' somewhat pessimistic report, figures focussing on annual home supply growth, released by the Department for Communities and Local Government tell a slightly different story. They claim than over 2014-15, 25% more new homes have become available on the market ñ a rate the likes of which has not been seen for over 28 years.

170,690 new houses came on the market in 2014-15, according to the DCLG. Around 20,650 of these new homes became available through new change of use rules that allowed for the easy conversion of office spaces for residential use, without the need for an affordable housing quota to be met.

Despite the lack of a quota being filled, in general, these converted office blocks tend to make for relatively cheap housing, though questions have been raised about their quality. Johnny Morris at Countrywide, a property firm, said that "many of the conversions have caused a split in opinion. Converted buildings so far have tended to deliver smaller/cheaper flats and there have been concerns over the quality of the living space. But on the flip side, a lower price means they 're more affordable than the equivalent new-build home, so have proved popular with buyers, particularly in the capital."

However, independent bodies and mortgage brokers have been keen to quell the government 's optimism, with Brian Murphy at the Mortgage Advice Bureau pointing out that "the market is by no means out of the danger zone just yet.

"Net supply of dwellings is remains 24% below the levels seen in 2007-08" he pointed out, "we are still seeing too many homebuyers chasing a single property."