Let’s face it; the Brexit deadlock in Westminster has been a cause of consternation – and in many cases boredom – for people across the UK. Yet, it would be wrong to assume that the Government’s current state of affairs reflects the performance and progression of different industries. Indeed, while the Government continues in its attempt to strike a deal that appeases all internal and external parties, sectors like the property market have been demonstrating far greater resilience.
This is impressive given the gloomy predictions that were first offered in June 2016 as the UK came to terms with the result of the EU referendum. Commentators assumed the worst, and when it came to property, there were real fears that domestic and foreign investors would be deterred from pursuing future bricks and mortar opportunities.
The reality is that while there has been some degree of hesitancy towards real estate amongst some investors, the doomsday scenario failed to materialise; house prices have been rising in most regions, new developments are springing up across the country, and demand for property remains resoundingly strong.
Importantly, while much attention is being placed on the short-term ramifications arising from Brexit, one cannot let this overshadow the long-term trends that have been shaping the property market for the best part of two decades. This includes rising house prices and the ongoing imbalance between housing demand and supply.
House prices are rising
All too often, people tend to focus on the performance of London’s real estate market. In one respect, this makes sense given it is one of the most highly sought-after property destinations in the world. It also explains the significant difference in house prices in the capital when compared to the rest of the country. In January 2019, the Office of National Statistics revealed that the average price of a home in London was £244,083 higher than the UK average.
It’s no secret that London’s real estate has been affected by Brexit uncertainty, with the rate of house price growth stagnating and in some cases dropping. However, this should not overshadow some of the notable trends we have been seeing in some of the UK’s regional hubs.
Take the Midlands, for example. The once industrial heartland of the UK has now become a property investment hotspot, and this has been spurred on by regeneration schemes and the relocation of major employers to Birmingham. As a result, more people are moving to this region, and this is fuelling a rise in house prices. In the 12 months to January 2019, house prices in the West Midlands increased by 5.2%. Similar trends are also being seen in Liverpool and Manchester, with house buyers and renters keen to take advantage of the affordable living options on offer as a result of regeneration projects.
Moreover, the recent political turmoil caused as a result of Brexit has done little to dampen investor demand for property. The number of transactions recorded in January 2019 for residential properties was 1.3% higher than it was 12 months ago. Meanwhile, the Office for Budget Responsibility (OBR) projects that house prices will rise by 4% year-on-year between 2020 and 2025. Both these statistics clearly show that whatever short-term challenges Brexit may bring, the long-term outlook for property is positive.
Correcting the imbalance between supply and demand
Another key trend shaping the UK housing market is the ongoing imbalance between supply and demand. Yes, it may be true that for investors seeking buy-to-let opportunities, regional cities offer a diverse range of options with high rental yields. However, the limited supply of new-build homes being listed on the market has made real estate increasingly competitive.
Quite simply, property developers are not able to keep up with demand for housing, and this imbalance between supply and demand, known as the housing crisis, is one of the most notable challenges facing the country today. For this reason, the Government has been attempting to boost construction efforts and bridge the gap in supply by setting house-building targets and funding pledges. It was positive to see Chancellor Hammond pledge £3 billion to construct more affordable homes as part of his 2019 Spring Statement; however, the barriers facing developers remain.
Figures released by the housing ministry in March 2019 showed that building work began on 40,580 homes in England during the final quarter of 2018; 8% down on the previous three months. This decline brings into question the Government’s aim of adding 300,000 new homes to the market each year by the mid-2020s.
There are a variety of reasons why housing output is on the decline. 57% of SME developers, for instance, have cited access to finance as their biggest obstacle. Importantly, such challenges can be effectively addressed through creative reforms. Debt investment products such as loan notes – a loan issued by private investors to the firms constructing a property – is one such measure that could be employed here.
The UK property market has continued to demonstrate its resilience as an asset class, and there remains strong demand for real estate across the country. As a result, house prices are rising at a steady rate and this is a positive indicator of the health of the sector. And while there are still some challenges facing the market, it is important for the public and private sectors to remain committed to housebuilding. There is clear appetite for property – the challenge is ensuring demand can be met.
Jamie Johnson is the CEO and Co-founder of FJP Investment, an introducer of UK and overseas property-based investments to a global audience of high net-worth and sophisticated investors, institutions as well as family offices. Founded in 2013, the business also partners with developers in order to provide them with a readily accessible source of funding for their development projects.