It seems too early to say that UK property values are approaching unsustainable levels, given the last half decade of value deflation. But some see signs that it is.
The history of land and real estate prices in the UK is Dickensian: the best times in some places (central London, for example) with lingering reminders of the worst times after the 2008 property bubble burst. (Leeds, Bradford and Liverpool). In the latter, struggling local economies mean vacant properties and stagnant housing sites.
Housing shortages can exist across the UK, but the economies of those different locations vary, according to a report from the Center for Cities, Cities Outlook 2013 (the report is supported by the Association of Local Governments). The report largely advocates different and local approaches to the housing crisis, which is very real given the natural and immigration-driven population increase that has outpaced new home construction by a factor of two for most of the time. 30 years.
The housing collapse that was part of the largest global financial crisis in 2008 certainly brought down the value of real estate everywhere. But true to the nature of home values (as largely documented in Cities Outlook 2013), the rally has been spotty. London and the South East have rebounded more strongly in 2013, says property consultant Savills. After disappointing reports in 2012 and the previous four years, average real estate in England and Wales rose 0.4% in May 2013, the fastest rise in six years, recalling when the property bubble was in full swing in 2007. . So does that mean a new housing bubble is forming? While that idea may seem ridiculous to some, here are some perspectives on that possibility:
“Help to Buy” runs the risk of another bubble: According to Sir Mervyn King, Governor of the Bank of England, this three-year initiative that will have 12 billion pounds of public support is too similar to the mortgage market guaranteed by the US government. By providing taxpayers to underwrite up to 15% of home mortgages valued at £ 600,000 or less, the program could inadvertently skyrocket prices.
London and the South East are most at risk of a bubble: CNBC-TV, the financial news network, is also using the “B word” to describe what is happening in these specific areas, where prices rose faster than the national average of 0.4%. in May (0.9% in London and 0.5% in the entire prosperous Southeast). “The gap between supply and demand in London is the largest since spring 2009,” said Richard Donnell, director of research for Hometrack’s property analysis firms. “In the last six months, demand has grown 15% [in London] while supply has decreased 0.6%.” He says there is a reluctance to put housing on the market in these particular areas, given uncertainties about jobs and housing availability elsewhere.
Basel III banking regulations and debt financing can restrict development: Savills builders south east London real estate analysts forecast that serviced land (properties with infrastructure, transportation access, and built structures) will reach 2007 highs around 2016. But because debt financing is limited, home builders will likely focus on smaller sites and build at lower volumes. This will tend to hamper overall development, so supply will remain in short supply, inadequate for the UK population, which continues to grow.
Savills’ analysis that home builders will lack the necessary funding does not take into account the newer two-step model for converting raw land into built homes. Home builders now have a choice: take the full risk and extended time frame of development by buying raw land from farmers and other homeowners, or wait for a team of investors to do half of that work for them. In the latter scenario, UK land investors, led by land development specialists, identify land with optimal development potential. Those specialists will have a knowledgeable purchasing approach and will be familiar with local zoning authorities that can make a designation change from, say, agriculture to residential and commercial uses. Once a purchase is made and use designation is secured, investors often build key infrastructure features, such as streets and utilities. Only then will a home builder jump into action to purchase ready-to-build lots. The profits can be split between both entities, investors and home builders, but the risk is also cut in half.