A slight uptick was witnessed in the annual house price growth in November, but the market is still subdued. Prices were 1.9 per cent higher than 1 year ago, up from 1.6 percent in October, which was a 5-year low.
The chief economist of Nationwide, Robert Gardner said that future trends depend on how the wider economic conditions evolve. In the short run, the uncertain economic outlook and the squeezing of household budgets will probably dampen demand even though unemployment is close to 40-year lows and borrowing costs are still low.
If employment continues rising and uncertainty lifts in the coming months, it is likely that activity will pick up through next year. The squeeze on household incomes has started to moderate and policymakers have indicated that interest rates will only rise at a moderate pace to a limited extent in the coming years, but only if the economy performs as expected.
Change of Use and Housing Supply Increases
The housing supply outlook has considerably improved after falling by close to 60 per cent in the wake of the financial crisis and there has been a significant uptick in construction in recent years. In England, new building completions in 2017/18 reached 195,300, which is 3 per cent below the 2007/08 levels.
Furthermore, the picture improves further if you add in the extra dwellings created by the conversion of larger homes into more units as well as the ones created by ‘change of use’, which includes things such as the conversion of offices to flats. On this broader measure, the net additions to the housing stock are now just 0.6 per cent below the 2007 levels.
The ‘change of use’ of buildings, such as from offices, shops, and other commercial purposes to homes with the help of floorplan software such as floorplansUsketch has boosted supply significantly in recent years. The changes made to government policy back in 2014 that granted development rights automatically for the conversion of offices into residences has been a significant factor, accounting for about 50 per cent of the dwellings created through the change of use since it was introduced.
2017/18 might have experienced a slowing down in the ‘change of use’ when compared to the year before, but it still accounted for 30,000 dwellings, which is about 70 per cent higher than the 2007/08 level. In areas such as Bristol and Nottingham, the ‘change of use’ accounted for close to 50 per cent of the homes added over the past 3 years.
Where is Supply on the Increase?
England’s total housing stock has grown by 1.9 million dwellings over the last 10 years, which represents an 8.5 per cent increase relative to stock back in 2007. The strongest growth has been in London, South West, and the East of London, which are some of the areas with relatively strong growth in house prices over the period, which suggests that supply has started to respond to price signals.
Meanwhile, areas such as the North West and North East, where house prices are still close to the 2007 levels, have experienced just modest growth in supply. If you focus on the most recent data, the South West experienced the strongest growth in 2017/18 with about 26,800 net more dwellings, 1.1 percent of stock at the beginning of the period. The East Midlands had relatively strong performance, boosted by an uptick in new builds, with 21,400 dwellings in total added, which is about 1 per cent of stock.
In contrast to most other regions, London witnessed a slowing in net additions to stock in 2017/18, with the net increase in dwellings being about 20 per cent lower compared to the previous year. This can be attributed to a reduction in new build completions as well as lower ‘change of use’ additions. This is probably in response to changes in the market conditions with modest price falls being recorded and demand staying relatively subdued.