Now that the dust from Brexit uncertainty and the election is settling, and a new decade with a new government gets underway, in this week’s blog Brickowner takes a look at some longer-term forecasts that might give us some insight into property and property investment over the next five years.
UK Investment and Economics
Looking ahead, the consensus among investing experts remains that the UK is unloved, cheap, and poised to rebound.
The Conservatives overwhelming election victory is a game-changer for investors in domestic assets given it brings certainty on Brexit policy. Talk of a ‘wall of money’ waiting to invest in British business is not just wishful thinking.
UK domestic stocks have already surged in value following the general election result, but institutional cash and international investment could arrive in the months ahead.
A recent poll carried out by This Is Money over half the city insiders surveyed believe, that the FTSE 100 could end 2020 over 8000, while none see the market ending below today’s price of 7632. This sentiment is also reflected in a separate poll of nearly 800 Interactive Investor customers. This found 47 per cent think the index will end 2020 at around its record value at 7,500-8,000, 19 per cent predict it will top 8,000, and 3 per cent forecast it will drop to 6,500 or below.
This positivity spreads more extensively than the FTSE 100, with the Treasury predicting positive growth in the UK’s GDP over the next five years.
Talk of an interest rate cut from 0.75% to counterbalance Brexit negativity could also boost investment and mortgage lending. With most forecasts not anticipating an increase to pre-2007 levels in the next five years.
Property: Demand, Building and Prices
A backlog of latent demand in residential property has created a shortfall of up to 2.3 million homes over the last 20 years and will continue to keep demand for residential property high. The Barker review of housing supply of 2004 identified a requirement for 250,000 completions a year. That number hasn’t been reached consistently since the mid-1980s and is now 300,000. The collapse of local authority construction since the 1970s is now seeing a very modest revival, meaning that the number of households on local authority waiting lists still number more than 1 million; housing associations only add some 30,000 properties a year.
As a result of the lack of supply, homeownership in the UK has fallen from 73% in 2007 to 63% now, with the most startling fall in those below the age of 44 in London. The reason is simple: The average UK house price rose 219% in real terms between 1985 and 2015, compared with just 10% in Germany, 28% in Italy and 120% in France.
The Tory Party remains wedded to its promise of ensuring 300,000 new houses are added to the property market each year by the time we reach the mid-2020s, which means that by the end of the current parliament (2025), over a million new homes could be built.
Only time will tell if the Government can reach this target. Evidence from the past two decades does not paint a particularly pretty picture; housebuilding has typically fallen well short of the levels proposed.
With demand high, prices are likely to stay high in the future. In Q3 2019 Experience Invest surveyed more than 1,000 UK property investors, finding that just over half (51%) of the respondents were confident there will be an increase in property prices and sales once Brexit is complete. The majority (55%) also admitted they had paused on their investment plans over the course of 2019 as they awaited the outcome of Brexit.
Most longer predictions around house pricing are optimistic. Knight Frank predicts mainstream UK prices will grow by 15% by 2024, while prime central London prices will rise by 18%.
CBRE forecasts the below regional house price growth of :
While before the election Savills anticipated:
A recent report compiled by the Centre for Economics and Business Research (Cebr) for the National Association of Estate Agents (NAEA) and the Association of Residential Letting Agents (Arla) predicts that house prices are set to leap by another 50% over the coming decade, reaching £419,000 on average across the UK by 2025.
When considering the above, there are reasons to feel positive about property investment and the broader UK economy heading into the 2020s. Let’s hope the forecasts are correct!