From Buy-to-rents turned build-to-lets to housing supply not correlating with demand and prayers for a change of heart on the Stamp Duty Land Tax Regime, the UK economic and housing market for 2017 has an air of uncertainty about it but will we be celebrating or commiserating these changes to come? Here are the front-line property market predictions for 2017.
1. Requests for reform on the Stamp Duty Land Tax Regime
People say that things must get worse before they get better and in order for something to improve, it is believed it must familiarise itself with that failure to enable the situation to continue and thrive. The same is said of the current economy in the UK and Matt Tooth – LendInvest Chief Commercial Officer – predicts exactly that of Stamp Duty Tax; “I predict UK economic growth will slow in 2017 and that we will see a fall in mortgage lending and a drop in the number of property transactions; this will lead the government to reformulate its housing policy by year end to be more even handed and less interventionist, starting with a plan to reduce the level of stamp duty across the board.”
Many have argued that the latest Stamp Duty Tax Hike has been the definitive factor of the recent slowdown in transactions. Whilst George Osborne’s changes last year meant lower bills for most homebuyers, the top end of the market has been hit with higher costs; London & Cambridge Properties calculated that the reduction in sales activity above £1m in the latter part of 2016 dropped significantly due to the heightened levy resulting in a loss to the Exchequer of almost £500 million.
Ian Thomas, co-founder of LendInvest predicts "2017 will be the year of the U turn. It will become clear that Stamp Duty Land Tax revenues are declining as a result of the increased taxation on higher value homes and second homes. It will also become more obvious that the current tax regime is indirectly suppressing the supply of new housing, countering the government’s wish to see new housing across all tenures."
2. Supply struggle continues to be a problem in the housing system
Though it may have only captured widespread attention in recent years, it has been evident for some time that successive governments have failed to ensure housing supply correlates with demands due to the combination of the recent price boom and stagnant wages. Keeping up with demand generated by rising life expectancy and immigration, a crisis that has plagued the country for decades needs to see a change, but unfortunately, nothing happens overnight. More money is due to be channelled into housebuilding, planning laws are being relaxed and land is to be freed up for development. However we will not feel the effects in 2017 and for a while, supply and demand will continue to be a grueling problem and some predict, may see house prices increasing during the year.
“The fact is the demand is still there, people still want to live in London. With the Prime and Super-Prime Markets reportedly seeing a notable reduction in sales, the same is not true of “standard” residential schemes. Rental and sales values at this end of the market are unlikely to change significantly. Mass house builders do not seem to have put any of their major schemes on hold” says Mark Stevens, Director, Gleeds Cost Management.
The property firm JLL is predicting that new housing starts in England will drop in 2017. “Although levels of new housing delivery were still woefully low prior to the referendum at least the direction of travel was positive and encouraging,” said Neil Chegwidden of JLL’s residential research team. “This will now fall back again.”
Steve Larkin, Director of Development Finance at LendInvest predicts “The HCA Home Building Fund will ramp up and we will see them become more prevalent in the marketplace working to generate more development.”
Estimates put the demand for additional housing in England at between 232,000 to 300,000 per year, a level not reached since the late 1970s and two to three times current supply.
3. London property prices potentially plummet
In London, the cost of property in relation to average earnings has reached a historical high; at nine times the average earnings which predominantly Stamp Duty is said to be the culprit. Latest data from Land Registry shows that annual rate of growth for the average UK house price slowed from 7.7% in January to 6.9% in October. In London, this is more pronounced; a slowdown from 13.5% to 7.7% during the same period.
The estate agent Knight Frank forecasts a 1% fall in London house prices during 2017, compared to 7% growth the previous year; “Looking into next year we believe that the slowdown in prices which has been evident in central London over the past 12 months will spread to the wider region, with Greater London prices down marginally in 2017.
This deceleration in the Capital will likely be acknowledged across the country with price growth down on 2016 levels."
Knight Frank further forecasts 1% house price growth in the UK during 2017, down from 5% in 2016.
4. The capital cool whilst the rest of the UK may heat up
Whilst London prices seem to be cooling – or at least slowly decelerating – it seems as though 2017 may see other parts of England creeping their way up to correspond with London prices. In second place after London, the South-East saw prices rise 9.1%, and the East of England was top with 12.3% growth.
“We expect the strongest price growth to be the south-east and East of England over the next five years, with price growth in London curtailed by affordability pressures. Towards the end of this period, markets in the Midlands and the North will show more capacity for house price growth, though much will depend on local economic drivers. Tax changes are expected to cause investors to shift their focus to some of these higher income yielding lower value markets.” Says Lucian Cook, Director of residential research at Savills.
If house prices do indeed rise, then the wealth effect is likely to cause an increase in consumer spending. This will cause higher Aggregate Demand.
5. Build-to-rent to beat Buy-to-lets?
In just recent months, it appears that Build-to-rents have swept the nation and potentially may overhaul Buy-to-lets. What is it that Build-to-rent have over Buy-to-lets that seems to bode so well with investors and tenants alike?
Ian Fletcher Director of Policy at the British Property Federation says, “The Government has been shifting towards a more multi-tenure approach post-Brexit referendum, but [The Housing Whitepaper] will be the first major opportunity to see what that means in practice and the White Paper will set the tone and direction of policy, not just for 2017, but for the next three years.”
Predicting Build-to-Rent will feature strongly, Ian Fletcher continued; “2017 will provide a great opportunity to present Build-to-Rent to the wider world as we move from a phase which has been about creating opportunities for investment through funding, planning and construction, to one that focuses on the buildings, their management and occupier satisfaction.”
Build-to-rent offers purpose-built accommodation in a community where tenants are surrounded by other renters with similar values. It offers a home for those who like to keep some flexibility in their lives and introduces incorporation of modern-design, public spaces for socialising and new, contemporary facilities that may not be a feature with Buy-to-lets. The public do not want second hand, they want contemporary and custom-made.
6. Builders busier than Estate agents in years to come
In turn, apropos point number 5, 2017 is to see a potentially slow year for the property industry on the grounds that liquidity issues in the second-hand housing market are to make a big appearance. Sinead Canning, director of Residential Edge says;
“Lots of British based buyers will need to move: life events will precipitate the need for bigger, smaller or different properties. Anecdotally, I am hearing stories of long, complicated property chains reminiscent of the 90s. Patience and perseverance will be the name of the game here. Extensions, loft conversions and garden rooms will abound as people seek to avoid higher stamp duty and long property chains. Expect your local builder to be very busy. Unfortunately your high street agent is going to be less so.”
7. Landlords liable to “Do it well” or “not do it at all”
Chris Norris, Head of Policy, Public Affairs and Research at the National Landlords Association (NLA) says;
“Rents will rise, but perhaps not as dramatically as some commentators are predicting. Following a year of regulatory and market shocks, there are many suggesting that rent rises will be necessary to cover landlords’’ costs. However, while the cost of accessing accommodation may rise, it should not be assumed that the ability of tenants to pay is completely elastic. In addition, there are signs that, in parts of the UK, households may be reaching the limit of their ability to absorb inflation.
In London specifically, NLA members are reporting reduced tenant demand, despite the chronic under-supply. This will no doubt force landlords to reappraise their approach to letting property and whether it is still in their interest to persevere with traditional lets.
In terms of lettings activity, 2017 is likely to be the year of the ‘professional landlord’. ‘Either do it well, or don’t do it at all’ should be the watchword for the private rented sector and the increased pressures of 2017 will make the decision a harsh reality for many.”
8. Political perplexity for 2017
On the morning of the EU Referendum Result day, Nigel Farage claimed June 23rd would “go down in history as Britain’s Independence Day” yet here we all stand half a year later with no clear sense of direction and ambiguity looming over the nation. At the moment, no clear details have been finessed thus it is difficult to speculate what is to come.
From the 2016 Autumn statement came the Chancellor’s National Productivity Investment Fund. It includes a £2.3bn housing infrastructure - to support 100,000 new homes - plus a further £1.4bn to be spent on building 40,000 new homes at realistic prices.
The government is set to begin its formal exit of the EU by March 2017, President-elect Trump is to take office in the US, making his political and economic impact on the world clear and Marine Le Pen of the far-right Front National will continue her run for the French presidency, which, if successful, could put the very existence of the EU under threat.
At the moment, no clear details have been finessed thus it is difficult to speculate what exactly is in store. For Ian Thomas, LendInvest co-founder 2017 will be “the year the government has to start delivering on housing within an uncertain political environment.”