According to the latest market analysis from JLL the prime London market in particular breathed a sigh of relief as the prospect of mansion tax evaporated when the Conservative party won the general election last month and modest price growth is predicted in the short term.
‘Whilst in the six month run-up to the election the number of transactions recorded in some areas of the prime market cooled by a third. The question now is how strong the demand bounce will be and if we will return to the heady unsustainable rates of growth that fed the market in the 2009,’ said Adam Challis, head of residential research at JLL.
The real estate advisory firm believes that whilst there will be a renewed level of demand in the prime central London market, underpinned by a more balanced supply backdrop, this will take some time to have an impact.
‘We have seen strength in activity resume in the prime central London market but we predict this to stabilise as the industry settles down and the new Government beds in,’ Challis explained.
The report says that in central London new build activity, off-plan sales remained robust in the first half of 2015, with some sensitivity for high value property. Development activity has been shifting towards outer areas over the past 12 months, with annual starts up by 59.3% in contrast with central London, which is down by 43.2% over the year.
Looking forward the firm believes that the focus needs to be on supply solutions that will tackle the real issue facing the UK housing market. ‘Policies to date have been about the demand-side solutions but Government needs to concentrate on policies that can drive a step change in supply solutions. Whilst these will take some time to bed-in and manifest themselves, they will be the solutions that ultimately provide the help where is it needed most,’ said Challis.
JLL predicts that with five years’ worth of clear runway to aim at, it expects to see a continued rate of growth in housing market transactions that have been slowly gathering momentum since the Conservative majority victory on 08 May.
The firm predicts that pricing is likely to remain under upward pressure, in line with a healthy, stable economic backdrop, real income growth, near term political risks subsiding and a sclerotic housing supply response will all play out.
‘Political risks are always present in residential markets. The UK needs a Government that actively seeks to provide certainty so that markets can behave efficiently for the benefit of the economy,’ Challis explained.
However, the firm points out that with certainty and stability resuming, there are, however, three political changes that may create renewed tensions in the housing market; the European Union referendum, regional devolution driven by Scotland and the 2016 Mayoral election in London when housing and affordability are likely to take centre stage on candidate manifestos.
In line with JLL forecasts from November 2014, continued modest price growth of 4% to 5% is anticipated nationally through the course of this year and over the medium term. The firm’s pricing and transaction forecasts remain unchanged nationally.
Challis pointed out that risks from the general election were strongly biased towards uncertainty of a potential change of government rather than the reality of any particular outcome. The exception to this was, however, in prime London, where even the possibility of a Labour Government created negative market impacts. However, the central view of a market that remains fundamentally well supported holds true and reaffirms the expectation of modest price growth over the course of 2015.
‘The Government could and should have a major role to play, but the industry itself must also look to modernise or experience even greater volatility than we saw through the last cycle. Now more than ever is the time to establish the industry structures which will meet the needs of our growing population, while also insulating the sector from cyclical delivery that can reverse the gains from better times,’ said Challis.
‘So, the housing industry should be optimistic about market prospect for the years ahead, while also seeking to consolidate improvements and create the foundations for a more robust sector for the long term,’ he added.
