How Will the UK Housing Market Be Impacted by the Latest Budget?
The United Kingdom is in the midst of a possible ‘housing crisis’. Chancellor of the Exchequer, Philip Hammond is expected to address the serious problems in the UK where new homeowners are being pushed out of the market by extortionary prices. Further, a lengthy period of high inflation has allowed many established homeowners to benefit immeasurably from appreciating prices. The Tories are in an unenviable predicament: millennials are increasingly disappointed by the conservatives who have not adequately addressed the housing issue in the UK. The rising costs of homeownership in the UK are pricing many intending homeowners out of the market.
At first glance, the problem appears to be excess demand. The short-term effects of building new houses will not provide solutions to millennials looking for homes. On a broader scale, the UK housing market is not short of homes – there is an adequate supply across the board. After the global financial crisis of 2008/2009, construction of new homes in the UK all but dried up. Over the years, the UK fell short in terms of the number of homes being built per year. This resulted in steadily increasing prices, and left and right agree that new-home construction is required ASAP. In 2015, government ministers established a target of 1 million new homes within 5 years. On Sunday, 19 November 2017, Chancellor of the Exchequer, Philip Hammond vowed to construct 300,000 homes per year.
Are the Tories Losing Traction in the Housing Debate?
Over the years, conservatives have punted housing as their strong point. Back in the 1950s, the Tories stressed greater emphasis on housing, second only to the defence of Britain. According to the Office for National Statistics (ONS), England’s housing market has been adequately supplied, however the net new supply is beneath the 210,000 threshold that will be needed until 2039. 10 years ago, the UK government estimated that some 280,000 homes will be required every year, yet by 2012 that figure had dropped to 231,000 per annum. Brexit pressures are also likely to skew the housing figures in the UK, given that many people will be seeking residences abroad. The UK enjoys a surplus of housing in industrial towns and cities, with more houses than households available. Owing to escalating prices (inflation is currently at 3%) and falling real wages, it is increasingly difficult for new homeowners to enter the market.
Phillip Hammond to Lay Out Plans for UK Housing Market
London remains the most expensive enclave for rentals and housing purchases. Leading into the 2009 global crisis, banks facilitated an increasingly large share of mortgages, while building societies dropped off precipitously. The UK government recently earmarked a figure of £10 billion for the Help to Buy scheme, and it already allocates a £24 billion housing benefit. Aggregate housing data indicates that there is no shortage of supply – it’s merely the prices and location of properties that is coming into play. Philip Hammond is likely to focus his efforts on increasing the role of the private sector for home construction, benefits and mortgage-related subsidies. Unfortunately, such measures have not fared well in the past, and are unlikely to gain traction in the present. Some of the key issues that will come under the microscope include the following:
- New Rules for Stamp Duty
- Planning Rules and the UK Green belt
- The Help to Buy Scheme with an Additional £10 Billion
- New Rules for Councils to Invest in More Housing Schemes
An unlikely proposal would be the government borrowing an estimated £50 billion to construct more homes. Nonetheless, Philip Hammond will lay out his plans for the current fiscal year in the budget speech on Wednesday 22 November 2017.
Do you feel that the UK has a significant problem with respect to the housing market? How would you address this problem in an economically just way?
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About Brett Chatz
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for spreadbettingreview.co.uk.