Property tail wags the economic dog

There are few figures which grab the attention of the UK public quite like property prices and the property market. In many ways the tail is wagging the dog in terms of UK property market and the UK economy. History shows us that over the last 100 years we have seen a sharp rise in housebuilding numbers at the heart of each and every recovery from recession. So, is the situation different today?

UK property market

The UK property market has performed admirably since the 2008 US led mortgage crisis which saw the worldwide economy plummet into recession. Indeed we only need to look at the London market to see prices now above their pre-2008 level with demand as strong as ever. On this basis, why are there concerns about the strength of the UK economy if the UK property market seems to be doing so well?

Many experts believe that property prices in the UK are being squeezed higher by a combination of increased demand and reduced supply. Statistics suggest that the supply of new homes in the UK is now at an 11 year low with 10.7 buyers per available property. We need to go back to 2004 to see a higher figure (of 14.8) with a recent low of 2.3 just prior to the worldwide economic collapse.

Home ownership still relatively high in UK

While homeownership in the UK has fallen from 70% in 2001 down to 63% today this is still relatively high in international terms. However, there are some enormous variations across the board!

The percentage of homeownership among those between 25 and 34 years of age has fallen from 68% to 39% during the same period. The situation regarding those aged between 16 and 25 is even more alarming falling from 37% only a decade ago down to 7% today. When you bear in mind that the younger population should be the property owners of the future, adding liquidity to the market, there are concerns that we are storing up problems for the future.

Economic performance

Many people may be surprised to learn that there is a very strong link between economic performance and the number of homeowners across the country. This has resulted in serious concerns about the long-term strength of the UK economy if nothing is done to address the property supply issues. As more and more people are forced to live longer with their parents this is leading to falling birth rates and reduced economic activity. It seems that the security and responsibility which come with homeownership spur many people on in their employment careers.

When you bear in mind that the UK market was averaging 250,000 new home completions each year in the 1980s, falling to 190,000 per annum in the 1990s, this does not reflect well with the sub 150,000 level today. Indeed despite David Cameron highlighting a recent increase in the number of new build completions the average is still less than 120,000 per annum since he came to office in 2010. We can only hope that current and future governments place more emphasis upon the new build housing market especially bearing in mind the statistical evidence showing the very close correlation with economic performance and birth rates.

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