House Builds and House Prices
Source: B of E – Economic Recovery and Housing Market (pdf)
A few interesting questions in the current climate is:
- Why have UK house prices started to rise – despite house price to earnings ratios being above long term average?
- Why are UK house prices rising after only 18 months of decline – whearas after the 1990 crash, prices fell for four years?
- Why are UK house prices showing signs of recovery whearas Spain and US faced much longer and more persistent house price falls?
The above graph from the Bank of England goes someway to answering these questions. As house prices started to fall, homebuilders immediately started cutting back on new house builds.
Also, in the boom years (00-07), there wasn’t a boom in house building. There simply isn’t a large surplus of unsold housing stock that you see in the US, Spain or Ireland.
Strict UK Planning restrictions and shortage of land meant that when prices were accelerating there was no speculative bubble in house building.
In the 1980s, there was a greater rate of housebuilding that meant there was more unsold stock depressing prices through the 1990s.
There are still factors which will weigh down on UK House prices
- Threat of rising interest rates
- The fact house prices are still expensive for many in a climate of low real wage growth.
- Continued high unemployment.
- Recovery in market could attract more sellers who had been holding on.
Nor, is it necessarily a good thing if house prices rise sharply on the basis of very thin supply.
