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Global house price crash on its way?

The year 2017 has started with something of a bang, at least in the property sector. The first piece of news is that the Organisation for Economic Co-operation and Development (OECD) has published its core predictions for the global property market, and the outlook is rather alarming. This report was swiftly followed by a detailed BBC study on the domestic housing industry and its prospects for this year. In the same news cycle, we received yet more evidence of the current Government's reforming zeal, at least with regard to residential property, with the announcement of some fourteen new garden villages across Britain. In this short column, we look at these developments and assess their impact.

OECD - there may be trouble ahead

Headquartered in Paris, the OECD is an intergovernmental body whose stated aim is the promotion of economic prosperity and stability. In this capacity, it is tasked with identifying trends in the global financial system and issuing warnings about emerging risks. In early January, it issued its projections for the worldwide property market in 2017. The contents of the report were striking for their pessimism. Several developed countries, says the organisation, have commercial and residential property sectors which are rapidly overheating and could shortly face dramatic price corrections. The nations which are of particular concern are Canada and Sweden. The former has seen its property prices double since the start of this century, while the latter is described as "skating on thin ice" with costs which are described as being incompatible with a "stable real estate market". Low interest rates in most advanced economies since 2008 have boosted demand for property and caused price spikes which are vulnerable to such shocks as recession or an increase in these historically low lending rates.

The UK was also highlighted as a market which is poised for a slowdown. The OECD said that we are already witnessing significant changes in the London sector, especially at the luxury or prime end of the market, as a result of both the EU referendum and an overdue cyclical correction. During the course of this year, says the study, house price growth is likely to slow down elsewhere in Britain. One of the report's more striking contentions, though, is that this could be a generally good thing. Greater affordability of residential property would, it argues, be beneficial for the wider economy.

Sober assessment for the domestic market

As the months following the aforementioned Brexit vote showed, though, the UK housing market is nothing if not unpredictable, so observers will be looking for views beyond those expressed by the OECD. A BBC survey of property experts will therefore be of major interest. The research essentially solicited the opinions of various market participants about the likely direction of house prices in the coming year and found that, despite minor differences in the details of their forecasts, the gurus were largely in agreement that the housing sector will be fairly subdued this year. Again, owing to the uncertainty around the country's membership of the EU and the Stamp Duty surcharge on investment properties, London is likely to see the most marked deceleration. However, things don't look especially buoyant elsewhere. The following is a summary of the forecasts for the general UK market in the next twelve months:

- Ray Boulger, property expert with John Charcol mortgage brokers, expects a 1 per cent rise
- Martin Ellis, housing economist with Halifax, expects a rise of between 1 and 4 per cent
- Robert Gardner, chief economist with Nationwide building society, expects a 2 per cent increase
- Henry Pryor, property commentator, expects a fall of 4 per cent
- Simon Rubinsohn, chief economist with the Royal Institute of Chartered Surveyors, expects a 3 per cent rise
- Ed Stansfield, chief property economist with Capital Economics, expects a 2 per cent rise.

Perhaps the prediction that most stands out is that of Martin Ellis who offers a 3 per cent margin of error. This really isn't a case of Mr Ellis hedging his bets. He simply takes the view that there is unprecedented uncertainty around the British economy so exact forecasts are not possible.

In any event, say the experts, the slightly less frantic housing market is unlikely, at least in the short-term, to be of much help to first time buyers, with a lack of supply being the key factor. Withdrawals from the Bank of Mum and Dad and widespread use of the Government's help to buy schemes are consequently expected to continue throughout the year.

New garden villages announced

Gavin Barwell, the minister charged with the housing portfolio, has announced the location of fourteen new garden villages, from Cornwall to Cumbria. These developments will house between 1500-10,000 new residents. In addition, there are plans for 3 much larger garden towns in Somerset, Buckinghamshire and the Essex-Hertfordshire border. The details of the schemes are still relatively unclear, but the proposals have been widely welcomed as an important step in building Britain's housing stock. The issues we expect to be analysed in the coming weeks and months are the levels of infrastructure funding support that can be expected from central government, and local opposition to new housing schemes. Already, disputes have broken out between environmental and countryside groups and those organisations concerned with affordable houses and jobs. The debate is likely to carry on during 2017. The garden villages will be located in Cheshire, Cornwall, Cumbria, Derbyshire, Devon, Essex, Hampshire, Lancashire, Lincolnshire, Merseyside, Northamptonshire, Oxfordshire, Stratford-upon-Avon and Surrey.

On a related note, the degree of innovation being applied to Britain's property market was further evidenced by the announcement of a "box village", to be constructed from shipping containers in Swansea! While this is largely a commercial enterprise, it will be watched closely to see whether any of its features can be used in the housing market.

The team here at Nethouseprices will be monitoring these and other property market stories in the coming weeks. Visit us again soon for more information.

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Source: 5th January 2017

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