“Building won’t be enough”: UK house prices to keep on climbing

Photo:   Alan Feebery

UK house prices are predicted to keen on climbing by a new report from economic forecaster Cebr, which warns that “building more won’t be enough” to stop it.

The predictions from the Centre for Economics and Business Research show that house prices are set to increase by more than previously expected in 2015. Cebr now expects the price of the average home in the UK to rise by 5.6 per cent – up from its June forecast of 4.7 per cent growth.

The lack of properties coming onto the market and therefore drying up supply is one of the reasons behind the upward revision to the forecast.

Cebr believes there are several key drivers of this growth. Firstly, households expect property values to keep rising, which means that individuals want to sell at the top of the market.

The UK’s ageing population is also a factor: homeownership has risen dramatically among older households since 1981, but has collapsed among younger households. With retired individuals less likely to move home, this is curbing the number of individuals putting property up for sale.

A substantial increase in the cost of moving up the property ladder is another headwind for buyers, especially in London. Moving up the property ladder has historically been a key reason to sell a home – but for many this has become unfeasible.

Indeed, in London, the shortage of supply and demand from buyers has, according to the Land Registry, seen the average house price in the capital reach £500,000 this month.

As a low level of housebuilding is only one of the causes behind the issue, the Cebre warns that exclusively addressing this matter – as the new Housing and Planning Bill largely does – will “not go far enough” in controlling rising home prices.

“Reconsidering various other housing market features is also necessary. For example, the UK’s population is getting older and with retired individuals less likely to move home, added incentives are necessary to encourage ‘rightsizing’. For example, a stamp duty exemption or reduction for those looking to ‘rightsize’ would encourage pensioners to put larger properties on the market,” advises the group.

Nina Skero, Cebr Economist and main author of the report, adds: “The price gap between a first-time home and a larger family home has skyrocketed in some regions, such as London, curbing activity in the housing market. For many, the rungs of the property ladder are moving further apart, making it impossible to upsize.”

If the forecasted growth continues, Cebr predicts that average UK house prices could exceed £320,000 in 2020.