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Are we building a sustainable property market?

Because of high demand and low available stock, the UK housing market is suffering from a chronic undersupply of housing, which is having a massive effect on the current property market.

by Knight Knox

For years, it has been no secret that the UK has not been building nearly enough homes to satiate demand. However this nationwide problem has reached fever pitch in recent years, so much so that it has been heralded a ‘housing crisis’ by the national press. This has caused friction in both the homebuying and private rental markets in the past decade—both tenants and homebuyers alike are increasingly feeling the strain of dwindling demand, with Zoopla reporting at the latter end of 2014 that a staggering SEVEN would-be tenants are chasing each available property on the market.

With a growing population and an increase in migration from London to the North experienced over recent years, it looks like demand for housing does not look set to slow down, so house-building is the only conceivable way to minimise the pressure of an inconsistent trajectory of supply and demand. It has been estimated by experts that the UK needs in excess of 200,000 new homes per year to quench the supply-demand imbalance—yet the past few years have shown that the country has struggled to produce just half of this figure.

However, this is not the only problem faced by the property market. The growing affordability crisis involved in becoming a homebuyer is further enhancing the chronic undersupply of available homes. In a situation that can only be described as ‘the domino effect’, the problems in the UK property market are interlinked, and almost cyclical in their repetition. Because homeownership, particularly for first-time buyers, is becoming increasingly expensive (thanks in large part to high deposit requirements and higher-than-average mortgage repayments), people are increasingly having to depend on the private rental sector for alternative accommodation. This has led to an influx of private tenants forced into the rental market in the wake of an increasingly inaccessible homeowner market, which has thus increased the already fiercely competitive demand for rental homes. Therefore, more and more people are then chasing the available homes already on the market without promise of newly built properties on the horizon. Naturally, the lack of stock and high demand has led to a huge increase in UK house prices, with a 9.6% increase recorded to the end of March this year throughout the country.

So what does this mean for the UK property market? At the moment, the market is increasingly unsustainable for house-hunters, both in the private rental sector and the homeownership market. The scarcity of stock is fuelling demand, which is increasingly leading to an overheated property market, particularly in areas such as London (where property prices are already way above the UK average). However, these seemingly adverse market conditions are perfect for property investors, whose buy-to-let properties are seeing growth in demand as a result. Not only can investors be sure of tenant demand thanks to the lack of available stock, but also prime properties in sought-after locations can also ensure low void periods, excellent rental yields and high capital appreciation thanks to ever-growing house prices.

In other words, there has never been a better time to become a buy-to-let investor. Although the rate of homebuilding is now at its highest level since 2007, in the meantime the UK population is increasing at a level that cannot cope with the amount of available housing stock in the country, so the supply/demand imbalance is still set to dictate the UK housing market for some years to come.

*This post was published according to the "Contributed Article Terms and Conditions"

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