At this moment in time it is difficult to say with any real confidence in which direction UK property prices will move in the short to medium term. It is fairly obvious that there will be some downward pressure in the short term but how strong this will be remains to be seen. One of the main problems facing the housebuilding industry is cash flow. Despite the fact the UK government has introduced an array of emergency loan schemes, could they go one step forward and take stakes in UK housebuilders?
Supporting the industry
Whether or not the UK government should be introducing more funds to support short-term loans for housebuilders is debatable. There is a real chance that the industry will struggle for the next six months or so and some companies could go to the wall, potentially leaving the UK government with significant guaranteed debts. So, are there other ways in which the UK government could support the housebuilding industry?
How would share stakes work?
If we cast our minds back to the 2008 worldwide economic crash, the UK government took stakes in some of the U.K.’s larger banks which could otherwise have failed. To all intents and purposes the government couldn’t afford to let any of the larger banks fail as contagion would have spread right across the globe. It is debatable as to whether these banking investments have created a net return because they have also secured huge numbers of jobs which has assisted with tax income. It is probably sensible to look at the return on government share stakes in a wider context rather than just the buying and selling price.
Controlling the industry from within
It does look as though a number of UK housebuilders will struggle in the short to medium term and require significant funding to see them through these choppy waters. So, what if the UK government took what could potentially be significant stakes in leading UK housebuilders. They would be able to control, to a certain degree, the mix of houses in the short to medium term and indeed prices. Might we see the number of “affordable properties” increase and thereby allow more people to climb onto the property ladder?
The reality is that if the UK government was to inject significant amounts of money into individual UK housebuilders then they would have a say in the mix of properties and prices – of this there is no doubt. If the government was also able to continue its “Help to Buy” scheme then this could be a double whammy, offering huge support to the industry.
Realising housebuilding investments
As and when the UK property sector recovers, the UK government could slowly reduce and then sell off its entire share stake as and when there was demand. This would be at a time when the UK housebuilding industry was back on an even keel and business balance sheets had been repaired. This could well be some time off but it would offer a degree of comfort and support for not only housebuilders but also house buyers in the short to medium term.
Controversial? Yes, but this is a real possibility as the UK faces up to a financial challenge which would be even greater than 2008 worldwide collapse.