What next for the UK housing market?

The UK housing market comes in for a huge amount of attention and press coverage in the country. It seems that house prices have become something of a national obsession and this isn’t surprising; house prices have a huge effect on the overall economy of the UK. And the ripples in the corporate sector are felt far more widely than in the obvious areas like house-builders etc. Directly complementary areas also feel the benefits of rising house prices – but the wider economy benefits too as people feel more confident about spending.
 
But this may be foolhardy. For most people owning the house they live in – rising or falling prices actually make no material difference whatsoever. Price changes may be relevant for investor-landlords, or those on the verge of trading down in the market to free up some capital for retirement, for example. And steep price rises are also bad news for those people just about to take their first step on the property ladder.
 
Nevertheless, according to this source from HSBC report on the future financial prospects for property haves and have-nots, it makes sense for young people to start the process of buying their own homes as soon as possible. So for this crucial new-buying market, the UK as a whole needs to build more affordable homes – and quickly.
 
But for the rest of us, price changes shouldn’t really make a difference to our behaviour; but they do nevertheless. And this distorts the whole economy.
 
And this is the main reason the governor of the Bank of England, Mark Carney, recently warned on the dangers to the UK economy of the boom in house prices – notably in London and the South-East.
 
Carney said this posed the biggest single risk he could see to the country’s overall long-term recovery and general financial stability. In particular, the Bank of England is concerned that rising house prices will cause too much of an increase in very high value mortgages, which can in turn lead to too much debt – which then has the potential to de-stabilise the UK economy.
 
The basic problem the UK has is of not building enough homes to meet the demand. The Bank of England is powerless to impact on this side of things – but planning restrictions have been generally eased throughout the country to enable more homes to be built. But this still isn’t happening quickly enough. Various house-building corporates are responding to the challenge, however, and are seeing their biggest boom times since 2007.
 
Overall, it’s still hard to imagine that the market outside London and the South-East has peaked. Most UK regions’ house prices remain well below their 2007-08 peaks, whilst the London housing market is something of a law unto itself. Here, the combination of a lack of supply of new homes, an ever-rising population and ever-increasing investor demand from abroad has seen prices rocket. It now seems likely that the effect will ripple out as London house owners decide to take advantage of this valuation gap that is now at record levels.