January 16 ,2014 | by Hari Sri

Where Is The Troubled UK Housing Market Headed?

Troubled UK Housing Market

As property values in Britain climb higher and higher, fears of a property bubble bursting grow more realistic. But the cost ascension continues undisturbed. We look at what 2014 holds for UK realty …

 

Over the past few years, the UK housing market has shown impressive signs of growth. While it seemed like a post-housing crisis resurgence in the first few years, it now resembles a property bubble. Will the growth sustain or is the end near?

 

The current UK housing market

Owing to property construction in the UK going through a lull, demand for property has surged high while supply has remained more or less flat. The result of this rise in demand has been a steady massive inflation of housing prices around the country.

In 2013, property prices in the UK rose an average of 8.4%.Some cities such as Manchester, registered a rise of over 21%. This rise is combined with an inflated rental market in all the big cities. While the prospect of property rising in value sounds lucrative  for some, the UK bubble has squeezed many from renting or buying property.

The most telling note of all came from Wall Street Journal. It noted that UK house prices were overvalued by 31%. Coupled with a cost-of-living crisis and slow income growth, UK shows all the symptoms of a housing bubble.

 

Where next for UK realty?

The Royal Institutions of Chartered Surveyors (RICS) forecasts that the UK property market’s growth is set to continue. RICS said that UK house prices are set to rise by 8% in 2014. It warned that ‘the demand and supply imbalance remains the biggest challenge facing the residential market.’

Starved of affordable options, the government’s ‘help-to-buy’ initiative has contributed to first-time buyers investing more. In 2013, Britain’s biggest housebuilder Barratt Developments said total forward sales increased by 71% to £1.27bn in the last six months. The appeal to invest in property is always great. However, whether first-time buyers will be able to sustain repayments in the long-term, remains to be seen.

 

What does the future hold?

While the growth seems to be sustaining through 2014 and 2015, Bank of England Governor Mark Carney seems to think that the boom might end in 2016. The recognition of the impact of this housing bubble is from the coverage it has been getting. The issue seems to have gone beyond merely the financial sphere of discussion.

Last year, the Labour party made housing one of its priorities in its 2015 election pledges. If it wins, Labour pledges to build 200,000 new homes per year till 2020. The Conservative-Liberal Democrat government, on the other hand, seems to be using ‘help-to-buy’ as the solution to fix the property crisis. PM David Cameron, earlier this month, lauded ‘help-to-buy’ and dismissed notions that it might contribute to the crisis.

It all came to a head this week as the ‘housing’ issue was brought up at Prime Minister’s Questions this week. PM Cameron and Leader of the Opposition Ed Miliband clashed over the ‘housing’ question. Although both pointed out loopholes in the other’s plans, there has been no consensus over what would be a viable solution.

 

Rest assured, the housing saga in Britain looks slated to go on for a while. There’s no instant and easy fix to this problem. The property market needs a construction boost, and it needs it fast. Simultaneously, the bubble needs to slowly fizzle out. Flattening the price rise seems imperative as property rate increase is now outpacing the rate of inflation.

What measures will be taken in the UK by the government remain to be seen. In the meantime, the only prudent response for residents seems to be to wait and watch.

 

<Principal image courtesy Ben Salter/Some rights reserved>

Hari Sri

Hari is the LSBF Blog's News Editor. He manages the editorial content on the blog and writes about current affairs, SME, entrepreneurship, energy, education and emerging market news.

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