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UK Housing Review
The Construction Centre.co.uk reviews the UK’s housing situation
The global credit crunch has without doubt had a ripple effect on the UK building industry. It has been suggested that there will be a steady decline in GDP (Gross Domestic Product) of the construction sector over the next couple of years.
It has been widely reported that the housing market has been unstable for some time with consumer mortgages being initially affected it was inevitable the house building market would also eventually suffer in terms of lending. UK housebuilders have reacted to the mortgage squeeze by laying off workers and cutting back on new projects. There still however remains a significant housing shortage throughout the UK which is likely to become acute over the next decade if building projects are halted or cancelled.
The government has also committed to an ambitious plan of 3 million new homes by 2020 but the skills shortage, the complexity of the code for sustainable homes and the economy are all working against this ever being achieved. The 2008 budget clearly showed how much the government needed to recoup in order to protect the UK economy however with outside influences, such as the credit crunch, the financial downturn is likely to continue.
Initiatives introduced to help buyers, such as the shared ownership scheme, have shown that the government is taking a proactive stance. Any initiative to help people start on the property ladder Should be commended as housing needs to be more affordable across the board at the low end of the market. The credit crunch, coupled with previous house price inflation, generally accounts for the difficulties people are having with access to the housing market. The government’s initiative to create affordable housing is designed to serve a purpose and help the people at the low end of the market. If the initiative fails then it would appear the government clearly does not have an accurate view of what “affordable” actually means.
In many ways, a few years of falling house prices should be welcomed and indeed is essential, since it is not possible to sustain above inflation house prices year on year as has been happening. The sooner house prices revert to sensible levels, the sooner the flow of lending and lending confidence will return to the market. The reality of a 5% drop in house prices requires little mourning when year on year there have been increases in prices from 5% to 25% which people were happy to accept.
Much of the current industry news regarding the housing downturn concerns new build homes and cut backs by housebuilders. The mortgage squeeze has hit housebuilders hard because for a long time now they have offered new homes with attractive additional bundles for buyers such as; no stamp duty, cash back, kitchen appliances and furnishings. What this has served to create is a false market price for new houses, leading to inflated valuations by over-zealous surveyors acting for over-zealous lenders. In the cold light of day such homes are now proving extremely difficult to sell in the second hand market, particularly if they still have to complete with “fully perked” new homes for sale only a few doors away. On reflection, to regain confidence with lenders, housebuilders should return to selling simply the bricks and mortar at realistic prices and steer away from the temptation of bundling in the perks at inflated prices.
Additionally, the skills shortage in the UK does pose a significant risk to the construction industry at large. The shortages permeate through the whole sector from labour and trades right up to middle and top level management. Migrant workers who have until now, helped to alleviate some of the labour shortages are also beginning leave the UK due to improved economic climates in their homeland. With the skills shortage already affecting projects throughout the UK, the gradual reduction in migrant workers will simply add to the existing problem.
To conclude, the construction industry sits between a rock and a hard place. On the one hand the credit crunch is affecting the private housing sector, encouraging housebuilders to make redundancies and cut back project plans and on the other, the UK is in desperate need of new houses and the skills with which to build them. The situation needs strategy, planning and direction from the government in order to bring together these two issues to satisfy the UK’s ongoing requirements. With a reduction in house prices the lending markets should regain confidence but housebuilders should be encouraged to ensure new build prices are not inflated or unrealistic for the market.
Ultimately, houses will always be bought and sold and new houses will be built, but the time for high prices is over and for the foreseeable future lower house prices will undoubtedly help regenerate the market.
Notes for Editors:
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