As lockdown restrictions begin to ease it’s time to look to the future. When and how will the UK housing market bounce back from this temporary halt to business?
At the time of writing, the UK is beginning to emerge from the Coronavirus lockdown. Thoughts now turn to how we can get the economy up and running again, with people returning to work and doing business together.
The lockdown has hit the housing market hard. Many potential buyers are worried about whether their jobs will survive the crisis, while even people who still want to view houses cannot do so. The construction industry has also had to slow down.
So what are the likely short and long-term effects of COVID-19 on the housing market? Can it bounce back, and what will that bounce back look like?
The big problem
The most pressing issue that COVID-19 brings is uncertainty. The economy and the people that power it are flying blind. There is no precedent for what has happened. We don’t know what we don’t know.
People don’t know how their jobs and money-earning capability will be affected. Nobody knows whether there will be another pandemic. We don’t really know whether it is safe yet to go and look around somebody’s house.
Business hates uncertainty, which is a disadvantage in itself because it means a drop in investment. The economy and the housing market cannot recover until we know more.
It also makes it very difficult to predict what is going to happen. However, we can make educated guesses.
There has been little immediate effect of COVID-19 on house prices, because the market has all but ceased to function.
Research by Rightmove reported a 0.2% drop in house prices during April. The question is, what will it look like next month when restrictions lift?
Market experts predict a drop of between 5 and 10% in house prices by the end of the year. This is due to an anticipated shrinking in the economy and a low level of transactions in the market.
As is often the case, London is the exception. Experts predict that house prices in the capital may only fall by 2% in 2020.
Another question is about what will happen when the Government’s help for homeowners and tenants inevitably comes to an end. Currently, new rules have made it harder for landlords to force evictions. The Government has also encouraged landlords and tenants to negotiate rent freezes, and lenders to agree to mortgage holidays. However, these won’t last forever, and that money will have to be paid back at some point. If homeowners and tenants struggle, there could be disastrous consequences.
The long-term effects of the Coronavirus crisis depend almost entirely on the way the broader economy recovers. If the UK is in for a prolonged recession, the housing market will suffer greatly. On the other hand, if the recovery is quick, like a V-shape on a graph, prices will recover. It’s useful to remember that before the lockdown, the housing market was faring quite well, 2.2% up year-on-year, in the wake of the UK’s political uncertainty finally getting some closure. Hopes are high that the housing market can return to those kinds of numbers soon.
Experts see things pointing to a quick recovery after a slow 2020. Most see pent-up demand being released in 2021, with prices rising between 2 and 6% next year. The property company Savills predicts a growth of 15% over the forthcoming five years. Again, London will experience the fastest rises.
However, the speed and force of the recovery depend on many factors. It will be of great help if the Bank of England and mortgage lenders can keep their rates low. The Government must continue with the various schemes designed to help people get into the housing market, as well as extending the current advice around forced evictions.
The industry also needs to work out a way to let potential buyers see houses safely, with social distancing enforced and regular deep cleaning if necessary.
Finally, the construction industry will need to get back up and running to full capacity soon. We need new houses to come on to the market to satisfy demand.
The impact on home affordability
Unfortunately, nothing about the COVID-19 situation is good news for young people trying to take their first steps into the housing market, or renters trying to purchase their first property.
While prices will drop, the average home will still be out of reach for people on medium to low incomes. Lenders will be screening potential buyers even more rigorously before they decide to give them a mortgage, and with the precarious employment situation at the moment, many may be disappointed.
Now more than ever, we need innovative solutions to get more affordable homes into the hands of people who need them. We need the Government to place housing affordability at the centre of its plans for economic recovery. We need local authorities to raise their requirements for the numbers of affordable homes built on new developments, and enforce them more diligently.
Economic downturns typically lead to increased levels of homelessness, whether that’s people sleeping rough or living in temporary accommodation. With homelessness levels already extremely high, something needs to be done before this problem gets even worse.
Let’s hope that once this is all over, we can shift the emphasis toward providing affordable homes to all who want one.