We all know what happens when there’s too much demand and not enough supply – prices go up, it’s as simple as that. Well that’s exactly what’s happening in the UK housing market at the moment and that’s why house prices are forecast to soar.
We hear a lot in the news about building more affordable housing but there is something else that is putting a bit of a spanner in the works and that is housebuilders are actually running out of land to build on!
Major builders like Persimmon are struggling to invest in the land required to build upon, and without land, there can be no new homes built. It’s fundamentally obvious that the UK needs more properties on the market to meet demand and stabilise house prices. However, despite housebuilders building as quickly as they can (which is disputed by some observers) they are running out of the necessary land.
It is estimated that we need to build 250,000 new homes a year to keep up with demand and this hasn’t been achieved in decades. This inevitably means that we have falling home ownership, increased house prices and rising rents.
Many observers are criticising the big builders not for their failure to invest in new land but to sit on the land that they’ve already got. Once the land is bought there is very little incentive to build quickly and make back the money that has been spent on purchasing the land. Financially it makes more economic sense for the builders to stretch out the building whilst house prices continue to rise so that they can maximise on their investment. Clearly, if we want to build more homes then this needs to change.
According to research from estate agents Savills, RICS (Royal Institution of Chartered Surveyors and the Council of Mortgage Lenders, bank analysts are forecasting that house prices in the UK will continue to rise over the next five years. If housebuilders don’t acquire the land to build new properties on, then the supply and demand issue will be further exacerbated, impacting on inflated house prices even more.
The knock-on effect of all this is that the buy-to-let market will still the most viable and reasonably priced option for people and, despite the hike in stamp duty charges, it still makes investing in buy-to-let properties an attractive proposition with a long list of potential tenants likely to be in need of somewhere affordable to live.