The UK property market has reached somewhat of an impasse: demand for real estate is high, residential development land supply is low, lending is tight and prices don't automatically plummet as stock increases. While the sector is more stable than its contemporaries in the eurozone - thanks in part to the strength of the pound - current policy appears unable to deliver the change needed to move the market forward, begging the question 'what next?'.
Despite the fact that the Council of Mortgage Lenders recorded a rise of 13 per cent rise in house purchase lending in the third quarter of the year, stability was not the name of the game throughout the three months to the end of September. August recorded 53,900 house purchase loans, before plummeting to 44,400 in September. Whether a reflection of stringent lending criteria or an inability of prospective buyers to meet asking prices, the data paints a mixed picture.
During times of market uncertainly, the natural response is to throw money at building new homes or to pressure banks to adjust lending and lower deposits. However, the UK environment is currently not appropriate to either solution. For several years there has been a lack of available development land and investment in existing resources has been hampered by a complicated planning system, according to Knight Frank.
A lack of clarity in this system has resulted in a drop in the number of sites getting planning consent. However, the commercial and residential estate agent claims this can be changed by increasing transparency, simplifying regulation and streamlining processes. This would release more land and encourage real estate investment. However, Knight Frank is not optimistic about reform occurring any time soon, maintaining that the situation will remain stagnant for another year as the National Planning Policy Frameworks "continues to bed down at local level".
Nevertheless, this isn't the only problem facing the market, with problems further down the planning line causing many projects to stall. Many sites achieved funding approval before the financial crisis, but have been forced to halt proceedings through lack of funds and a drop in the number of people able to buy properties once completed. The government is trying to change this by introducing schemes such as the NewBuy mortgage programme to get more people onto the property ladder and into affordable homes, but the property ladder is still a mountain that many are unable to climb.
As many come to the conclusion that new developments may not be the answer, empty and disused property is often explored as a means to increasing UK housing stock and meetinglevels of demand. This comes with the added benefit of rejuvenating ageing towns and fledgling communities, and the government is increasingly giving local councils the tools they need to turn run-down homes into residences. Two years ago a GBP 100 million fund was released to restore derelict properties, with at least 3,300 new affordable homes expected to be delivered by March 2015. Sheffield is one locality that has recently completed the restoration of more than 600 empty homes, the Star reported, with many other areas of the country bringing property back to its former glory.
However, investors often struggle to find the capital to finance large-scale renovation projects and, to cover costs, final sale values could be high. However, for those with the finance, derelict and empty homes can be fantastic property investment opportunities. Nevertheless, the ability of prospective buyers to own a home - whether a new property or renovation - will depend on a change in lending criteria and a drop in house prices.
While logic may dictate that more stock means lower values, analysis of government data by IPIN Global suggests this may not be the case. Despite a rise in property volumes between 1982-1988 and again in 2001-2007, price levels did not diminish; quite the contrary, they increased. Combined with unfavourable economic conditions that reduce the willingness of mortgage lenders to take risks, affordable housing in ample supply could be some way off.
- Tuesday 20 November 2012