It seems supply is the key to any housing market upturn

Whether you look at the UK property market, Northern Ireland, Spain or specific parts of the UK, it seems there is one common factor when markets are doing well. A lack of supply seems to run through all property market upturns which would suggest that governments effectively control property markets via planning application processes, etc. However, is it really that simple?

Supply and demand

When you strip away the area, strip away the infrastructure, strip away the local employment market and look at the basic elements of a housing market, it comes down to supply and demand. If any one of these is out of sync with the other this will encourage either an upturn or a downturn. If they are balanced then effectively supply is meeting demand and there is probably limited if any increase in property prices. So, who controls supply and demand?

Governments

In its most basic form, the flow of supply to the housing market is controlled by governments and local authorities via the planning application process. If governments need to turn the supply tap on they can approve more applications and if they need to reduce the supply of houses this simply tighten the regulations. From time to time we will hear about changes to planning application processes but more often than not these decisions are made behind closed doors – with limited or no real input from the general public or investors.

Mortgage regulations

Again, mortgage regulations have a direct impact upon demand for UK property and hence they will impact supply. We know that the UK government, together with many other governments around the world, tightened mortgage regulations in light of the 2008 worldwide crash. This led to a short-term reduction in the funding available for house price purchases which then fed down the food chain to first-time buyers and new properties. So, as access to funds began to fade there was limited need for new properties and many home owners decided to stay put – leading to a shortage of supply.

Tax incentives

While the majority of tax incentives associated with the UK housing market relate to buyers and homeowners, there are an array of tax incentives the government can and has used to incentivise housebuilders. This is yet another way in which the authorities can directly control the supply of new property to the UK housing market to suit their needs going forward. On the flipside of the coin, things like the help to buy scheme pour additional funding into the property market with a focus on new developments. Hence, governments are able to directly influence the supplier of new homes.

Governments pull the strings

Time and time again we have discussed property prices in the UK and the supply/demand imbalance. We know from official figures that there has been an undersupply of new property in the UK for decades. Politicians have promised to rectify this problem but they have yet to deliver. The problem is that voters experience a feelgood factor when house prices are rising hence they are perhaps more likely to vote for the incumbent government. If we are in the middle of an economic downturn, which will directly impact house prices, history shows us that this generally leads to a change in government.

So, in basic terms the supply and demand of UK property can and does have a material impact upon the intentions of the voting public. Why would any government want to flood the market with new housing only to dilute the value of existing property and go down in the estimations of the voting public? Do turkeys vote for Christmas?


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