Demand for property in the UK is at an all time high. There are not enough homes for either owner-occupiers or renters, and that is pushing house prices and rents up.
The market is also getting busier as interest rates and borrowing costs fall. Market activity in Q4 2024 is at a 10-year high by some measures, and house prices are rising at their fastest pace for more than two years.
What does the future hold?
The big question for both owner-occupiers and buy to let investors is whether this is a good time to buy UK property. Will prices go up, and will rents increase?
The latest forecasts from Savills are positive:
- 23.4% house price rise by end of 2029
- 17.6% rental growth by end of 2029
But what is the basis of those growth predictions? The fact of the UK market is that there are not enough homes to go around. If we can look ahead and see that the shortage of available homes will continue, we can be confident that positive forecasts can be taken seriously and used to inform property purchasing decisions.
The UK needs to build a lot more houses
The UK has a shortage of approximately 4 million homes according to the Centre for Cities. We would need to build 442,000 homes per year over the next 25 years or 654,000 per year over the next decade in England alone to close that gap.
The government’s most optimistic target – 1.5 million homes in the next five years – will not close that gap.
Hitting that target will also require a huge increase in the number of homes actually being built each year. That will rely on problems like workforce shortages, materials shortages and other issues being solved.
In other words, it is unlikely the government will hit its housebuilding target. Even if it does, there will not be enough new homes to meet demand.
How many houses is the UK actually building?
In reality, we are not even building enough new homes to meet the target, let alone the demand. According to EPC data, just 231,100 new homes were completed in 2023 – approximately 70,000 short of the government’s target.
In the coming years, that number is likely to fall even further. Savills estimates that in the second half of the 2020s, we are on course to build an average of just 170,000 homes per year.
That will create an average shortfall of 130,000 homes per year on top of the existing shortfall for the next five years.
Statistics from NHBC back this up:
- 21,967 new homes registered in Q1 2024, 20% down on 2023
- 26,240 new homes completed in Q1 2024, 13% down on 2023
The figures for the rest of the year have followed that pattern.
Altogether, it means that the UK is not building anywhere near enough homes to meet demand. We are not even building enough homes to keep up with the minimum demand needed.
For both owner-occupiers and investors, that means that competition for homes will only increase in the coming years.
Both house prices and rents are likely to increase, and that will lead to improved capital appreciation and rental income.
More construction in the years to come
Construction levels for new housing are so low that even an improved output in the next three years won’t make a huge amount of difference to the available supply of housing.
Research from the Construction Products Association (CPA) suggests that private housing construction will increase by:
However, it is increasing from a low base and still won’t meet the government housing targets.
Investment foundations are strong
That means anyone buying property in the UK can be assured that house prices will not decrease because of new housebuilding.
While there are other factors at play, the overwhelming demand and lack of supply is one of the most important factors that house price growth is based on.
We are at the beginning of a new property cycle and nothing about the next five-year period suggests that the supply problem will be solved.
Instead, house prices will go up, rents will increase and this will continue being a great time to buy property in the UK.
Want to learn more about the UK’s best property hotspots and how you can invest in UK buy to let? Get in touch with the team today for more information.
