The general election result in the UK has caused a renewed period of political uncertainty, but housing is one area where policymakers can continue to make progress if the will is there, according to a new analysis.
The report from real estate firm Knight Frank points out that house price sentiment slipped in May, but households still expect house price growth over the next 12 months although the market is going through a slowdown.
But the market has not been dented too much by the political machinations, according to Grainne Gilmore, head of residential research at Knight Frank, but other factors such as inflation and interest rates could have an effect.
‘The unexpected UK election result has led to a week of political negotiations as the Conservatives try to form a government. While this has prompted increased levels of uncertainty, there was a relatively modest reaction in the financial markets to the result amid hopes in the city that the country could be heading for a slightly softer Brexit,’ she said.
‘Yet the political situation is being exacerbated somewhat by recent economic data indicating that inflation is rising and that wage growth is lagging. This week, the news that three members of the Bank of England’s rate setting committee voted for a rate rise, caused a sharp rise in sterling,’ she pointed out.
‘Economists had not been expecting an interest rate rise until early 2019, given the relatively benign inflation rate environment up until now. Policymakers are also keen to maintain a stable rate environment as the country prepares to leave the European Union. However, the recent inflation data, and the tone of the minutes of the Monetary Policy Committee’s meeting, indicate that modest rate rises may be on the cards earlier than this,’ Gilmore warned.
The report also points out that the Bank of England will also be watching the United States where the Federal Reserve has raised the base rate for the fourth time since 2015, taking it to 1.25%.
Gilmore also addressed the issue of yet another housing minister and what is likely to happen with the much welcomed Housing White Paper. She believes that as Gavin Barwell, who lost his seat at the election is now the Prime Minister’s chief of staff housing is unlikely to fall off the political agenda.
New housing minister Alok Sharma comes from a financial background and sits on the Treasury Select Committee but has not housing background but Gilmore points out that it is hoped that Sajid Javid, who has remained as Secretary of State for the Department of Communities and Local Government (DCLG), can also push housing forward.
In terms of the Housing White Paper, which was published earlier this year, Gilmore believes that there are still hopes that more detail will be announced in the Autumn Budget.
‘The UK needs to boost the supply of homes where they are most needed, and this is one area where the Government could make progress, even if other hurdles remain for a minority government,’ Gilmore added.
The report points out that house price growth continued to slow in May, although the market remains highly localised. Gilmore believes that affordability remains a key concern in many markets, and this, coupled with increased economic uncertainty, is weighing on price growth, but at the same time, ultra-low mortgage rates and a lack of supply are putting a floor under pricing.
Overall UK house prices fell by 0.2% in May, taking annual growth to 2.1% while average prices in prime central London were flat and down 6.6% year on year. But again values vary regionally. For example, in Scotland while prime prices fell by 1.2% across the country in the year to March, in Edinburgh prime prices were up 3%.
In the lettings market average rents across Great Britain rose by 1.8% in May, with a 1.9% increase in England. UK rents have been in positive territory since 2011. But in the prime central London market the Knight Frank index reflects the fact that while they are still down 4.8% year on year the decline is easing.
The size of the private rented sector (PRS) across the UK is expected to continue to grow, with Knight Frank forecasting that around 5.8 million households will be living in the PRS by the early 2020s.
‘With the appointment of the tenth housing minister in 10 years, housing needs to remain close to the top of the agenda, so policies can be implemented to boost the supply of homes where they are most needed,’ Gilmore concluded.
