The inflation protection property of UK houses is one element that attracts investors. However, targets that are unachievable and badly thought out policies could see the property sector put at risk.
It was a historic election this year and during the run one of the main concerns and areas discussed was the lack of housing in the UK. There is talk of there being a requirement of 200,000 homes built per year which looks like it is unachievable if the emphasis of policies points to private developers and consumers.
One issue is the land market which is not efficient and is rewarding for only those who stockpile it. There is not enough supply, ownership is concentrated and there is a planning system in place that is restrictive. A simpler process was put in place by the National Planning Policy Framework which saw the responsibility move to the local authorities to supply housing land for five years; however certain reactions to these developments in specific areas have become an obstacle.
The building industry saw many skilled workers leave when the financial crisis took hold and this has now resulted in the rise in costs being linked with a decrease in skilled labour which is removing the profit advantage that comes with demand. Therefore, this has resulted in builders distancing themselves from building more homes because it is a pointless task if the margins are susceptible to being minimised.
The Help to Buy initiative helped to boost demand but if the Mortgage Market Review puts a limit on the increase in mortgage lending there will be a lower impact. This means that it could be difficult for consumers who are already battling against the affordability tests to play a part in a 50% increase in buying activity. The extension on the Right to Buy scheme that the Tories have proposed will also have little impact as an ongoing battle with housing associations is likely to continue should it go ahead.
However, there is a glimmer of hope in what could look like a relatively bleak picture which is the potential for institutional investors such as pension funds who are now looking to introduce US/European build-to-rent models into the UK along with investing in social housing. Inflation protection is one positive that makes UK housing attractive as property has risen above inflation during the last four decades. This is vital for the pensions industry which is weighted down with an increase in longevity and RPI-linked liabilities.
With the Conservatives in power, they will have to back and use the capital as well as the common focus that us usually put on housebuilding should they have any hope of reaching their targets.