Published:
12:00 AM December 16, 2021
The property market and, in particular, the housing boom, has been both a wealth creator and cause of concern during the past two decades.
House prices have risen 86% above inflation since 2000, delivering a capital gain to home owner’s main residence of £3tn. Despite fears that this market bubble would burst during the pandemic, house prices have continued to rise between the end of 2019 to mid-2020/21, with an increase of 19%. This is the first time since the second world war that property values have increased during a recession.
The Government, as part of their Covid measures, introduced incentives to support the house building industry. Additional resources were directed to fund affordable housing provision. The biggest package was an incentive introduced during the summer of 2020, whereby the first £500,000 of any property purchase would be tax free – i.e. below this level there would be no stamp duty.
This relief was extended until the end of June 2021. It was then reduced to £250,000. In October 2021, the threshold returned to £125,000.
Despite this, there is still no evidence of the property market slowing down. Prices hit a fresh record high in November 2021. The average UK property changed hands for a record £272,992 in November. An increase of 8.2% from October. The quarterly rise in sales prices was the highest since the end of 2006. A typical house is therefore now almost £13,000 more expensive than it was in June and has risen in value by an average of £33,816 since March 2020.
The South West, along with Wales, has been at the top end of these house price increases. The continued surge has confounded expectations of property experts, who had braced themselves for a slow down once the tax incentives had been removed.
It would seem that one of the main reasons for this, is a flight from City Centres with many people seeking larger properties with more outside space. This is only one however of a number of factors. There is an overall shortage of available properties. Many households have accumulated savings during the pandemic, which is now being used to help property purchases. The strength of the labour market is a key factor in building confidence. It is also clear that the fierce competition between mortgage lenders is keeping interest on repayment rates close to historic lows. This has certainly encouraged first time buyers, who are currently more influential in the market than existing house owners on the move. There are parallel examples of low availability and increasing prices for properties to rent, which is encouraging demand in the Buy-to-Let market.
Predictions of whether this trend will continue are however far more sober. The prospects for higher interest rates in 2022 are a reason for greater concern. The Omicron variant is also likely to be a material factor in exposing the fragility of current economic growth, as it increases the cashflow pressures on vulnerable sectors of the market, such as, hospitality and tourism. It also comes at a time when much of the debt taken on by many businesses during the pandemic will need to be repaid.
What does this all mean for Northern Devon? A dynamic housing market is generally good for growing economies. This provides wealth creation through the construction process. It also generates higher levels of disposable income. This radiates out into a wide range of local business services, particularly in the retail sector. Growing communities and high quality placemaking are normally a huge stimulus for sub regional growth.
The dangers however are equally apparent. High property prices make the whole business of getting onto the first step of the property ladder that much more difficult. It is critical that Northern Devon provides as much support for first time buyers as possible. If we cannot provide housing accommodation for the next generation, then we will lose all the benefits of their skills and enthusiasm. Equally, it is critical for many businesses that there is sufficient accommodation for key workers. Sectors, such as the health and care industry and hospitality, are always going to struggle unless this problem can be resolved.
This whole issue is something which has been known about for years and no adequate solutions have yet been found. No single agency can be held responsible for sorting out the problem – Local Authorities, Housing Associations or Central Government. This can only be addresses by a community and business wide approach to the problem. This should be high on the New Year’s wish list for Northern Devon for 2022.
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