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Shortage of homes will boost prices, says expert - 23 February 2009
With news that will be greeted with cheer by struggling homeowners and investors across the country, one of the leading experts in the UK property industry has said house prices could soar when the recovery does eventually come along.
As the property market continues to suffer from inertia, a lack of buyers and sellers who have little or no confidence in their prospects, David Pretty CBE, Chairman of the New Homes Marketing Board, asserts that price will rise rapidly once the recovery begins. This is due to a severe underlying shortage in new homes across the country, which could reach more than one million within two years.
These “dangerously high” levels of housing needs will mean that when buyers are once again able to find financing and are able to move, there will be high levels of competition for the properties on the market, sending prices surging upwards.
“There is a very real possibility that property prices, which have fallen 15 per cent or more, could rise back to 2007 levels within five years. These sort of pressures invariably happen to any market when demand far outstrips available supply” Mr. Pretty said.
“Even before the current recession, national housing production was well below previous decades. Today, we are in a far more difficult situation. The reality is that we are forming households at the rate of around 230,000 each and every year – that is the level we need to meet. But we haven’t built in anywhere near those quantities for many years, so we now have a serious backlog which continues to build up.”
The government was somewhat ridiculed last year when it announced that we needed to build some three million new homes before 2025, but even that figure seems like it could be a conservative estimate. Added to this is the fact that the past year has seen a huge slowdown in the rate of house building. As developers and construction companies have laid off staff in the face of dire financial results, once buyers do reappear on the market there will be a period when there is strong demand but builders are unable to deliver enough new homes to market as they will not have enough staff, sites open or materials ordered to get building quickly. This will serve to accentuate the shortage of available housing stock, further driving prices up.
There are two consequences for the market and buyer to be mindful of, however. Firstly, it is important that we do not create a mini bubble in the property market. This could happen if prices rise too quickly, surge ahead of affordability and the amounts that banks are prepared to lend, and buyers are once again scared away from the market. Secondly, it is imperative that the government does more to help first-time buyers. If prices pick up quickly, first-time buyers – the ‘new poor’ as David Pretty calls them – will once again be faced with the prospect of being priced out of the market.
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