What is wrong with the housing supply in 2022?
Prices, rates & competition are changing blazingly fast
Not a well-kept secret, the housing market in the UK is going through turbulent times. It is now understood how the mass-exodus of London workers during the pandemic and the subsequent re-entering of renters after the lockdowns, are affecting housing prices and causing insane fluctuations. However, this exogenous renters’ mobility has not yet settled and its impact is not yet full blown. Add on top of that the war in Ukraine, the subsequent energy crisis and inflation and you have a mixture of unpredictable factors that inevitably manifest in the real estate market too.
Unpredictable might be an understatement; in reality the market is going bananas: as The Times reports one in every thirty homes (that is, more than 11,000 homes) are being downvalued. To fully grasp this, imagine that you extend an offer for a house at £400K and selling is agreed. However, before the completion of the exchange (that can last from weeks to months) a new valuation of the same property says it’s now £300K! This is how crazy it has become.
What fuels this irrationality in the market is however and to some reasonable extent, the lack of housing stock. The supply that cannot meet the demand. And the latter, of course, cannot be forecasted because …pandemic and crisis, right? Well, not so. The housing demand has been steadily increasing well before the pandemic in London and the UK (see the first figure below). The supply, on the other hand, has been remaining constant or even declined. In the entire UK, the number of planning applications granted has been slowly but constantly dropping already since 2016! A research from TwentyCi paints a more dramatic picture: the available properties for sale are down by a whooping 36%, compared to 2020. Surely, one has to weigh in the repeating lockdowns and supply chain failures that hindered the delivery of new housing during 2021. On the other hand, there is a 25% increase in new home registration, as reported by NHBC. However, this is largely attributed to a growth in detached and semi-detached houses and, hence, mostly outside central London. In the capital, new home registration, even if it has increased in the first months of 2022, it is still lagging behind pre-pandemic levels. The most recent planning data by the government do not seem to upend the trend: residential applications in England were down 7% in the last quarter of 2021 as compared to the same period in 2020.
Demand has been constantly growing — supply hasn’t
In London, the available flats for sale recorded a noticeable increase, between January 2020 and January 2022. The number of houses — according to TwentyCi — listed for sale has gone up, from 71,850 to 75,470. However, again, the number of residential applications submitted reveals a shocking 5% drop in London, for the last quarter of 2021, compared to this of 2020. For reference, the only time that the number of applications for residential units in London dipped as much was at the time of the first lockdown (-6%).
As if the above picture were not grim enough, flocks of renters returning to the UK add up to the explosive mixture of supply-demand mismatch. As Hamptons recently reported, more than 30% of homes let in London are to London first-timers. In 2020 this was 12%. London’s social life is catching up very quickly and the capital shows the familiar ultra-dense pre-pandemic behaviour. Funnily enough, in late 2021 Hamptons was expecting that London rents would recover to pre-pandemic level by mid-2022. In actuality, we have already exceeded them. By far.
Given the still tight supply backdrop coupled with modest growth in demand, house prices continue to be driven higher across the country (…) As a result, there is little evidence of an easing in the recent strong pace of house price growth coming through at this point in time.
UK Residential Market Survey April 2022, RICS
There is not doubt; the rate at which we ‘consume’ housing far exceeds the available ones and the gap is ever-increasing which, in turn, drives house price growth. What is the response? The government initially projected 300,000 new houses per year, however we now know that this milestone will most likely not be reached.
What adjoin offers is a rent-to-own model where one rents and lives in a house that is currently for sale. Progressively, and as the renter builds wealth, the house will be bought by the renter — but only if she wants! In this sense, adjoin taps into the pool of ‘for-sale’ houses in order to normalise — to some degree — the tumultuous rental market.