Ahead of today’s Budget, property experts are waiting to see whether their predictions will be dispelled, or whether they will prove to be true.
According to the Chancellor, the housing market and the inability of younger people to get on the property ladder is the key priority, and the main driving force behind his pledge to build more homes.
Philip Hammond has committed to building 300,000 new properties per year and increasing liquidity, while uncertainties of potential stamp duty changes continue to loom.
Richard Donnell, insight director at Hometrack, believes that although the government’s attempts to rectify any imbalances in the housing market should be praised, there is no quick fix.
“There are a mix of factors that are combining to deliver what many describe as a ‘broken housing’ market and this issue of illiquidity, or a shortage of homes, is central to that problem,” he said.
Donnell listed a number of underlying factors that the Chancellor should focus on in order to alleviate the housing crisis. According to the Hometrack director, two-thirds of private housing comprises three-bedroom homes; while new builds add just 0.8% to overall housing supply, 75% of this is made up of homes with three or more bedrooms.
He suggested that the government should focus on the ‘pinch points’ of the market and give more insight on the profile of the existing supply of homes. With property sizes falling, longer life expectancy and the rise in single and couple households, demand is no longer aligned to the current profile of housing supply.
Pricing is also affected from the structure of existing supply, meaning the financials aren’t attractive enough to encourage people to downsize. This adds pressure on two-bedroom homes and keeps entry costs high, almost equating to the cost of three-bedroom homes, he said.
Furthermore, homeowners are staying in their properties for longer periods of time due to low inflation, reducing market liquidity – which has been on a downward trend for the last 30 years.
Last on the list, the rise of housing being used as an investment by private landlords switching owner occupied to rental properties impacts liquidity.
Donnell mentioned that lower housing turnover is the biggest underlying outcome of these factors. This creates scarcity and keeps prices high. “The ability of Government policy to impact some of these factors such as demographics and the historic structure of supply is extremely limited,” he added.
“The government is right to target more supply but we should be looking to drive supply into the ‘pinch points’ of the market – homes for first-time buyers and those looking to trade down the market.”
He concluded: “This is the quickest way to supply homes that are in most need and start to make housing more affordable for a wider group of households.”