UK Property Market Report: FEBRUARY 2024
March 4, 2024
This might be the most important update you read this year, for whilst the headlines shout about inflexible inflation and the marginal gains (or not) of mortgage rates, our eyes are on the UK’s burgeoning housing supply crisis and the potential for capital appreciation this offers speculative UK property investors.
Figures released this month – by both Savills and the FT show the UK at an unprecedented juncture in its housing delivery; that of a chronic under supply that will have huge ramifications in two to three years when the volume of new homes for sales falls off a cliff. For UK wannabe homebuyers this is depressing, if not frightening to say the least. For property investors, it presents a huge opportunity. As the old adage goes, one man’s loss is another man’s gain and never has it been more applicable when looking at the ramifications of UK housing supply being at an all-time low.
What is happening with UK housing delivery?
In short, the UK is neither building enough nor granting enough planning consents to ensure a continued supply of new homes to keep pace with demand. The FT analysis identified an annual shortage of 200,000 thousand homes – and as much as 300,000 homes per year if the current population continues at is present rate of increase. In 2023 the UK delivered 234,400 homes. Yet, between 2023-2036 a minimum of 421,000 homes need to be delivered every year to satisfy demand. Previously, the sweet spot has thought to have been 300k. But the UK’s not even hitting that.
And this seems to be a very UK-specific problem. The country has fewer homes per capita than France, Germany and Japan – and yet it is one of the most in-demand housing markets in the world, where property is viewed as a high-performing asset class. Furthermore, this is not a problem that can be politically influenced by whoever wins the country’s General Election this year. The supply problem is endemic, regardless if the country turns red or blue.
Savills report that 2023 saw the lowest figure for planning consents in a calendar year since 2013, warning that there is ‘risk of housing delivery falling below 200,000 homes per annum for the first time since 2015.’ Housing delivery isn’t just ‘declining’ – it’s positively in reverse and particularly acute in London and the South East.
So far, higher interest rates have prevented a sharp increase in house prices – instead people have turned to the rental market (again another win for landlords), but competition for supply will likely hit its peak in two to three years, by which time interest rates will have come firmly down and homebuyers will be flooding back onto the market because it’s more financially viable for them.
For the astute investor, this makes now the ideal time to buy before we see chronic competition for a small pool of new build homes sending prices rocketing. Already, in the first two months of 2024 we’re seeing an uptick in demand for housing. The number of sales agreed 23% higher than in January last year and “more pertinently” as Savill’s Lucian Cook notes, 8% higher than the 2017-19 average for the month. Supply is dwindling as demand is rising. And, buoyed by news that the average UK house price only fell by £4,000 last year, valuation requests are also up 23% on this time last year. For all the noise about house prices, people are now seeing that it wasn’t as bad as they were led to believe. In fact, the real crisis for UK homeowners is already in the making, it’s the supply story which is going to eventually price them out of the market.
Like it or not, the UK is moving towards being a majority nation of renters. The only type of new build housing which appears to be on track is the Build-To-Rent pipeline, apropos of massive amounts of institutional cash. BTR completions rose by 57% on their 2022 number. And if that’s where the institutional money is going – well, follow your nose. As Savills CEO James Sparrow wrote this month,
“As soon as a critical mass of deals takes place, a snowball effect can take hold with more and more buyers coming back to the market. The trick is to be the investor at the front of the queue. Timing is everything: it always has been, and always will be.”
And that time to buy quality new build UK buy-to-let property, is now.
A quick overview – what happened in the UK property market in February
The market is moving – number of listings, sales and prices achieved all went up on pre-pandemic averages. Zoopla reported agreed sales were up by 15% and buyer demand by 11%. Meanwhile, Property Eye released some astonishing figures that calculated rental growth from Jan 20- Jan 24, Outer London came in at 30.6%, the South East at 25.5%, West Midlands at 29.2% and North West at 28.4%. The breakaways however, were the South West at a whopping 45.2% and East Midlands at 39.5%.
Mortgages took a bit of a ride – the Bank of England kept the rate at 5.25% leading to the majority of lenders passing on a slight raise, that was until Halifax, delivered a “massive mortgage curveball” announcing it would cut rates. So far however, this seems to be little more than a PR stunt with no published lower rates so far forthcoming.
The beginning of 2024 has definitely seen a shift in sentiment; buyers coming back to the market, sellers releasing more stock, the good news however, echoing the comments above, it’s still a buyer’s market – very much an investor’s market.
In terms of our very own buyers, our Manchester Development One Victoria, priced from £277,000, is proving to be a popular investment, as is Birmingham’s Sloane Court starting from £197,500. For those seeking the bright lights of London and more of a trophy asset there’s Aspen in Canary Wharf where prices begin at £550,000. Keep an eye for a new blog coming soon where we explore the London market in more depth for property investors.
As ever, please get in touch with any questions.
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about the AUTHOR
RPA’s founder, Richard has worked in residential development investment for 20 years and oversees the general running of the business ensuring the RPA Group retains true to its founding principles. Over his career Richard has built an incredible network of international property investors and like-minded industry professionals. The RPA Group was born out of a duty of care to provide property investors with an industry-leading and integral service, one that connects investors with quality and desirable investment opportunities, whilst providing reliable and trustworthy market commentary and analysis alongside, enabling investors to make the best, most-educated decisions for them.