The UK House Prices Dilemma

Frances Senn

The value of the UK’s housing stock soars past £6tn, yet this month marks the first month in which UK housing prices have fallen. This is a trend which could, potentially, continue.

Figures show that wealth in housing is mainly concentrated in the expected areas: the South East and London, with the majority belonging to those aged 55 or above (63.3% compared to 3.3% owned by those aged 35). This is hardly surprising given how difficult it is for young people to step on to the property ladder. Despite being worth more money, house prices look set to fall.

Yet, Halifax have identified that, for the first time since July, there has been a decline in house price growth. They state that UK house prices rose by 2.5% from September to November, which is the fastest rate of growth seen since the beginning of the year. In the 12 months to November, prices were 3.9% higher than in the corresponding year. Yet, prices only rose by 0.5% throughout the month of November. The rate of growth was in line with forecast but lower than the one recorded in October.

However, although there was a decrease in November, house prices rose considerably in 2017 in general. According to Halifax, the average property is valued at £226, 821, which is 3.2% higher than the average valuation in January.

There are a number of contributing factors, yet the most important one relates to a simple equation of supply and demand. The supply of new housing has fallen for the last 20 consecutive months up until October. Yet, there is an increased demand for new and affordable homes. This is one of the contributing factors that has caused house prices to rise.

Yet, Halifax do not believe that this growth will continue, given that there will be affordability issues when wages do not keep up with inflation. This indicates that demand will decrease, and so we can expect to see a general price decrease in the future. Moreover, as more and more young people will fail to get onto the property ladder, they will resort to renting. This will reduce the demand for people wishing to own property, which, in theory, should also curb the price growth.

There is debate over the validity of Halifax’s figures. Nationwide claim that house prices had risen by only 2.5% over the past year, lower than the general rate of inflation. Yet, regardless of these discrepancies, any reduction will be useful to help first time buyers. One month of decreased growth, however, does not indicate that prices will definitely continue to fall.

The abolition of Stamp Duty for first time buyers may well increase demand and therefore increase prices as more people might be able to afford to buy. However, this is a double-edged sword. It is difficult to say that a reduction in house prices will not have an adverse effect, drive up demand and then increase prices overall.

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