The housing market began 2013 treading water, with average prices up by 0.2% in the first quarter, having fallen by 1.1% in Q4 2012.
Since then, with the support of the Help to Buy scheme for purchases below £600,000, house price growth has picked up to the extent of concerns being raised of a possible bubble being created once more.
For Q2 2013, year on year growth was 1.4%, with prices up by 5.2% in London. The fact that sales are up against Q2 2012 is not surprising as this was the period when stamp duty exemption for first time buyers ended which had encouraged new entrants into the market. Other schemes, such as Home Buy, Right to Buy, and Funding for Lending are starting to have an impact, on the economy which is helping to gradually increase demand.
While interest rates remain at historically low levels, for at least the next two to three years, affordability should remain good for existing mortgage-holders and those first-time buyers who can get mortgage finance and have enough capital for a deposit.
On the supply side, house-building is starting to recover after the rapid fall in the level of development in 2007. Although there are positive signs of growth, the on-going lack of traditional finance for large-scale development and inertia caused by planning reforms continue to act as a drag on the building of new homes. While the level of starts has begun to marginally rise again, it will take some time for output to increase significantly and is anticipated the level of development completions will remain suppressed over the next two years.
The change in the planning environment following the introduction of the National Planning Policy Framework along with the scrapping of regional housing targets, has led to a degree of confusion as local authorities come to terms with releasing deliverable site for housing development.
The new uncertainties within the planning system clearly increase the risk for developers in some locations. The proposed introduction of the Community Infrastructure Levy (CIL) and the on-going use of s106 agreements is likely to reduce rather than increase the rate at which developers can deliver new housing product to housing need. In many locations across the region oppressive levels of CIL and unrealistic s.106 obligations will make the kinds of large housing schemes that are needed to boost the housing supply, unviable. With rising demand and the on-going shortage of housing, we could see rising prices over the short and medium term, leading to affordability problems.
:: Ray Minto, Associate Director, National Markets – Land and Development, GVA