The Office for National Statistics is today under intense pressure having downgraded the average value of both London and UK property prices. Introduced under the guise of “a weightings adjustment” this has caused significant confusion and concern in equal measures. The estimated average value of London property has fallen by £27,000 between January and February when taking in the original ONS figure which has since been adjusted. So, is this confusion a buying opportunity?
It is debatable as to whether the reweighting of the London and UK property value indexes will have any major impact upon investment decisions. The main area of concern is perhaps investor sentiment and whether indeed we can fully trust other figures issued by the ONS and other such bodies. If the ONS could seemingly get the value of UK property so wrong what other figures could be misleading?
While there has been no mention so far there is the potential for mortgage companies to revalue various properties and recalculate their figures against monies owed. This should not have a major impact over such a short period, and a relatively small drop in average value, but what if the average price indexes continue to fall?
We may well see some opportunistic buying as those with cash look to strengthen their bargaining position while this confusion and mayhem descends.
It is all down to the weightings
When calculating the average cost of property it is not simply a case of adding up the value of all purchases over a given period and dividing by the number of properties in question. If this were the case then those towards the higher value end of a market would have a greater influence which would skew the figures. Therefore those calculating various indexes need to have various weightings against different types of property based upon their popularity and number of transactions. This is where the problem seems to have occurred with January used as the month when weightings were adjusted creating a divergence against the original data.
Perhaps if the authorities had issued the reweighting index figures in January as opposed to first using the old method of calculation this would have been easier for investors to accept?
If you put aside the ONS issues in the short term there are many positive factors for the UK property market going forward. The UK population continues to grow, there is a shortage of newbuilds and increased demand for private rental properties is still helping to support the buy to let market. Despite the promises made by various political parties we have yet to see any material increase in the number of newbuilds across the UK. We see the headline grabbing figures such as those in Scotland, where 5000 new homes are on the cards, but this is but a drop in the ocean in the wider context.
It will take decades for the UK authorities to catch up with the growing new build problem with a suggestion that even moving ahead at full capacity the UK construction industry would struggle to fulfil current demand. There needs to be greater investment in apprenticeships, greater activity within planning departments and more incentives for construction companies to significantly increase their new build operations.