The supply of homes in the UK will not meet demand unless the Government ploughs more cash into alternative development models, research by North East commercial property advisers GVA has found.
The firm’s summer 2014 Development Outlook research report claims supply will continue to lag, despite a dampening of demand through a rise in interest rates and tighter mortgage lending criteria.
“The economic outlook is much brighter than it was a year ago. London and the South will continue to outperform the rest of the UK, but the gap will gradually narrow,” said Neil Morton, director and head of planning at the Newcastle GVA office.
“In the residential sector, helped by the Government’s stimulus, there has recently been a fairly close match between house price growth and development activity.
“Development activity has already increased significantly from its 2009 low point, but it is debatable how much further development activity will increase.
“The plethora of recent government initiatives have helped development funding, stimulated housing demand and increased house price inflation. This in turn has helped to increase the amount of house building.
“But by how much and for how long is the uncertainty, particularly as the tightening up of mortgage regulations could reduce effective demand and limit house price inflation.
“House builders are wary of house price bubbles developing, having suffered so badly when the market crashed in 2008/09, and are likely to show restraint just as they did in the late1990s and early 2000s, when strong house price inflation did not stimulate a large increase in private sector house building.
“Eventually this restraint helped cause the house price boom in the early 2000s and the house building boom (and slump) that followed. House builders will be very wary of history repeating itself.
“The only way to expand total residential development significantly, to try and match supply and demand is, therefore, to greatly expand the new town/garden city initiative, further stimulate private rented sector development on sites less suitable for owner occupier housing and increase the construction of public sector affordable housing.
“With stronger economic growth, occupier demand will continue improving in the commercial sector, with accelerating rental and capital value growth this year outside London.
“The low levels of new commercial development outside London are causing shortages of grade A space in some locations, and the effect will be stronger prime rental and capital value growth.”
The research found development viability has improved, and will continue to improve as rental and capital values increase, but it also claims commercial development activity will continue to be constrained by the availability of finance.
Mr Morton said: “This will lessen over time. Scheme location, pre-letting, income security and length of leases will remain important issues. Commercial development will continue strengthening, but from a low base.”