A good friend and colleague of mine recently described the use of monetary policy in controlling inflation to pulling a brick out of a wall using an elastic band. Nothing happens for a while, then suddenly the brick isn’t just out of the wall, it’s hitting you in the face.
The state of the housing market has been the subject of intense scrutiny recently, and with stubbornly high inflation of 8.7% alongside another Bank of England base rate rise in June, it is clear that there is still more disruption to come as we head into the summer months.
The Governor of the Bank believes that two-thirds of previous interest rate increases have yet to work their way through the economy. All eyes will be on this month’s inflation data and the next Monetary Policy Committee on August 1.
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The value of housing stock
A recent research report from Savills, ‘Valuing Britain’, reveals some interesting insights about the residential property market in Wales. The research looks at the total value of residential property across the 海角视频 and how this has changed over the years.
It shows that while Wales continues to lag behind the 海角视频 in terms of GVA (gross value added) per capita growth and economic inactivity-rates, the value of its housing stock has risen faster than any other part of the 海角视频 over the past three years.
Its total value by the end of 2022 was £307bn, which represents an increase of 29.6% over the previous three years, considerably outstripping average 海角视频 growth of 23 per cent. Ceredigion saw the strongest growth of any local authority in England and Wales and Blaenau Gwent was in third place with increases of 40% and 39 % respectively.
How is ownership changing?
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The research reveals changes to housing tenure, indicating a shift in relation to the beneficiaries of value growth. Across the 海角视频 it is estimated that almost 40% of the growth over the last three years benefitted owner-occupiers who have paid off their mortgage debt. This means that in absolute terms, Welsh households might be less exposed to the headwinds, with 38% of homes owned outright with no mortgage, compared to only 33% in England.
For mortgaged households, Wales has an affordability advantage, with average prices being 32% below the 海角视频 average. The likely impact of rising mortgage rates is therefore less severe and we expect price growth in Wales to outperform the 海角视频 average over the next five years, at 11.1%.
An analysis of tenure between 2011 and 2021 highlights a 25% increase in the number of people renting in the private sector in Wales, a significant but less marked rise than the 29% increase seen across the 海角视频 as a whole. This brings the total proportion of private rented stock to 17%, compared to 21% in England, according to latest ONS data.
A question of supply and demand
Transactions have fallen away in recent months, on the back of weaker demand for homes, but they have been more robust than expected, at more than 90% of the pre-pandemic average. We expect activity to fall further as the full impact of rate rises is felt in the market.
New homes completions held steady in the last quarter of 2022, according to Energy Performance Certificates (EPCs) and Stats Wales, with EPCs remaining 7% above the 2017–19 average. However, the development pipeline in Wales is rapidly shrinking, and the delivery of new homes is expected to fall further over the coming months.
New housing starts fell sharply in the wake of last Autumn’s mini budget and looking ahead, figures from the Department of Business and Trade show that brick sales – a proxy measure for house building starts – in April 2023 were down by nearly a third (32 per cent) year-on-year, the lowest number since the first lockdown in 2020.
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Market recovery
In terms of values, the pace of recovery will be uneven, and its timing dependent on the prospect of interest rates peaking, which is in turn reliant on inflation being brought under control. What we do know is that when this happens we can expect demand to return and for the Welsh market to outperform the 海角视频 average.
However, with Local Development Plan (LDP) housebuilding targets not met in any Welsh region last year and delivery having fallen in all but one region, meeting need may become more difficult in the future.
- Nick Bennett is director and head of economics Wales for property advisory firm Savills