Monday, 16 May 2022

Five-year market trends forecast

FOUR significant trends are likely to shape the UK housing sector over the next five years, according to Savills — interest rates and mortgage regulation, the realities of post-pandemic lifestyles, the road to zero-carbon homes and the changing prospects for housing developers.

Lucian Cook, head of residential research, said: “The mini housing boom of the past 18 months has curbed the capacity for future price growth across large parts of the housing market, especially in an environment when interest rates are expected to gradually increase.

“The extent to which increased rates act as a drag on the amount people are able to borrow — and therefore future house price growth — will depend on how existing mortgage regulation is applied and amended over the next five years.”

Regarding the lasting impact of the pandemic on house buyers’ lifestyles, Mr Cook said: “We expect that the pandemic will have a lasting impact in terms of where people want to live and what they want from a home, especially given uncertainty around the impact that new variants of covid will have on the need to work from home more regularly in the future.

“The desire for a dedicated space to work and better outside space have the potential to change what we build, both for owner occupiers and for private renters.

“From a location perspective, we expect demand for family housing to be more focused on the commuter zone and, to a greater degree, its fringes, as hybrid working patterns become more established.

“However, even if people commute further but less often, the quality of that commute will remain important. Not only will it concentrate the demand for family houses to areas with good transport infrastructure, but it also looks set to create a spin-off market for city centre boltholes.

“We also expect to see increased demand for purpose-built senior living, as older households think more carefully about their future housing and care needs.”

The third trend, according to Mr Cook, is the transition to zero-carbon homes. He said: “If one thing is for sure, there will be no shortage of opportunities for investment in improving the energy efficiency of our homes and decarbonising heating sources in the next five years.

“Not only is the scale of the challenge vast, but there appears to be more political urgency to effect change, thanks to COP26.

“The prospect of tighter regulations for private landlords will present a cost challenge that is likely to impinge on net returns. Some will reconsider their investment in homes that are less energy efficient, pushing demand towards more modern homes. The road to zero carbon has also become a major financial consideration for affordable housing providers. We expect this to further open up opportunities for private investment to help those providers meet other objectives, including the delivery of new affordable homes.”

On housing developers, Mr Cook said: “The recent mini housing boom has resulted in healthy balance sheets and capital to deploy, resulting in short-term upwards pressure on land values. But with reduced price growth expectations and high build cost inflation, the outlook is less clear.

“2022 looks set to be the last hurrah for Help to Buy, a scheme that has underpinned private housebuilding since its inception in 2013. The economics of the delivery of first homes and shared ownership are very different, while we wait to see what traction private initiatives such as deposit unlock have on grassroots demand for new homes.

“In part, we expect the gap to be filled by a larger and more diverse Build to Rent sector, which looks set to provide the next best oven-ready, secure market for developers. Given the challenges facing parts of the commercial property market, demand across a spectrum of opportunities in the residential sector seems set to move it from the alternative to the mainstream investment category.

“In other respects, the continued merry-go-round of housing ministers means the future direction of housing policy has become more opaque over the past 12 months.

“Planning reforms put forward in the Queen’s Speech, so unpopular on the back benches, look set to be watered down to reduce the pressure for housing delivery in the wider South East.”

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