The Housing Market and Covid-19:
Every sector has been impacted by Covid-19 – granted some more than others. So, we’re taking a look at the ramifications on some of the sectors you might have pressing concerns about. First up is… the housing market! The Coronavirus pandemic will likely have long term implications for all aspects of the residential housing market. While it is starting to operate again, the complexities introduced by social distancing means that we can expect progress to be sluggish, even if supply and demand return quickly . Adding to that is the Chancellor’s recent confirmation that it is ‘very likely’ that the UK is facing a significant recession. As such, we can expect consumer confidence to be slower to return.
As with many industries, social distancing measures made the official lockdown guidance difficult to navigate. The Construction industry was no exception. So, while officially, construction sites were allowed to remain open during the lockdown, the social distancing regulations made the practicalities of doing so virtually impossible for many. As a result, many sites closed, including any corresponding sales offices and show homes.
This immediately tells us that a fall in the delivery of housing and the number of new-build sales for this year is inevitable. Data from Glenigan alone showed that from 31st March, construction had stopped on sites with capacity for 193,000 homes in England. To put this into perspective, that number is equivalent to 79% of 2018/19’s total supply! The good news is that sites are now re-opening. Furthermore, local councils are permitting extended working house to allow the necessary time for social distancing measures to be safely implemented.
While the land market strengthened in light of the general election result, the coronavirus outbreak duly offset it. A few existing land deals managed to go through immediately prior to the lockdown, but on the whole, most new land-buying activity ground to a halt. Naturally, any changes in the land market will depend on what happens in the wider housing market. The number of residential transactions has seen significant drops. Back in 2019, 1.175 million house purchases were recorded. Currently, Knight Frank predicts 2020’s figure could be as low as 734,000! They are not alone – Savills now estimates it will fall somewhere between 566,000 and 745,000. If, as we suspect, economic uncertainty heralds a sluggish housing market recovery, it is entirely likely that we may see land values drop.
Planning and land supply
In contrast, the planning system has fared relatively well, with the flow of land still going through. This, no doubt, was in part due to the Coronavirus Bill, which made temporary provision for councils to meet without councillors being physically present. As a result, some planning decisions have still been made, and sites have received consent for residential development. The Local Plan process did not fare quite as well. All examination hearings were postponed, so there is likely to be a significant delay for a number of areas in the adoption of their Local Plans.
New build sales demand
Maintaining cash flow is important for all businesses. Unsurprisingly then, housebuilders will want to start making sales again as soon as possible. We suspect that we may even see a surge in buyer incentives being offered as the industry strives to agitate the market back to recovery. There may also be more Build to Rent developments. One word of caution would be around the Help to Buy scheme. The delays may mean that some properties are no longer eligible for this, so please do double check if this is something you have been banking on. It is also worth noting that after April 2021, the scheme will be subject to regional value caps. It will also only be available to first-time buyers!
What will happen to house prices?
We always pay keen attention to the Which? Reports. And their reports on house prices certainly make an interesting read. They believe house price growth will stagnate in the short term, and that price data may fluctuate for some time yet. No doubt they are basing this on the low number of transactions going through. Savills offers two different predictions depending on the coronavirus outcome. The first forecasts a 5% drop in prices this year and a 5% rise in 2021. The second forecasts a 10% fall this year and a 4% rise in 2021. It seems it’s going to be a case of closely watching how the situation develops and how the market responds.
As always, if you would like to speak to an adviser, please do contact us on 01243 767 469. Alternatively, you can email us from our contact page, and an adviser will be in touch.
Written by Alex Welsh
Alex is a Resolution-accredited, Chartered financial adviser. Having joined the firm in 2012, he has extensive knowledge of all areas of financial planning.