House prices are never far from property investors’ thoughts and recent figures from the Land Registry look set to push the topic into the headlines again.
At the end of February, the Land Registry published figures showing that average UK house prices were still rising strongly, despite many market forecasts that suggested the rate of capital growth would begin to slow. The data shows a year on year price rise of 7.1% in January 2016, and a monthly upturn of 2.5%.
On the face of it, these impressive figures are surprising. At the end of 2015, economists at Nationwide predicted that average values would rise by between 3 and 6% over the course of 2016. ThisIsMoney predicted 4% and Halifax predicted between 4 and 6%. Savills Research said it expected prices to rise 5% over the course of the year, while Knight Frank put the figure at 4.1%.
Against these predictions, a rise of 2.5% in a single month looks to be considerably ahead of market expectations. However, it is important to note one or two important caveats, which perhaps suggest that prices will indeed rise at the more measured pace that many commentators are forecasting.
One key consideration is that the national average quoted by the Land Registry is substantially affected by the London property market. Here, the annual price gain was close to 14%, so such numbers are bound to skew the average. Outside of London and its immediate surrounds, prices rose at more modest rates. It is also worth noting that the Land Registry’s single national figure masks a great deal of patchiness across the regions.
Nevertheless, there is a broad consensus that property prices will keep rising – and there are very good reasons for this. Last week, for example, the National Association of Estate Agents issued a statement saying that the stock of available housing had fallen to its lowest level in 14 years. It reported that the average number of properties in its members’ branches was a mere 33 in January and that it had not seen worse numbers since December 2002, when the average was just 25.
The NEAE also pointed to a clear disparity between supply and demand, noting that the mean number of people looking to buy a house had risen to 453 per branch. That paints a dire picture of housing availability: an average of 453 people chasing just 33 properties in every estate agency in the country. To put that another way, the figures would indicate a demand-to-supply ratio of more than thirteen to one.
Given such numbers, it is wholly unsurprising that prices are continuing to rise. It is true that house building is beginning to pick up pace – in February, government figures suggest that the number of new-build homes being started across England had reached its highest level since 2008 – but the rate is still markedly short of what it would take for the market to regain any kind of equilibrium. The charity Shelter estimates that annual house completions would need to rise to around a quarter of a million before it would make an impact on what it regards as the current housing crisis.
For the time being, and for the foreseeable future, there appear to be no forces, either in the housing market or in the national economy, that are capable of reversing the current trend. Accordingly, all the mainstream commentators – comprising estate agents, letting agents, lenders, surveyors and more – agree that prices will continue to rise.