The path towards Brexit will dictate what happens in the UK housing market over the next few years but it is expected to remain reasonably strong and active, according to a new analysis.
There may be some turbulence along the way with article 50 to be enacted by march 2017 and the country set to leave in 2019, but the latest forecast from real estate firm JLL says that there will still be moderate growth with the residential market picking up again from 2020 onwards.
‘Demand will be undermined in the short term by uncertainty and a more subdued economy while supply issues will exacerbate, lending support to prices. The perennial issue for the housing industry remains supply and we are pleased that there seems to be fresh impetus in this regard,’ it says.
‘The big question, however, is whether policy initiatives target short term supply improvements, or look beyond the immediate horizon to create lasting, long term solutions,’ it adds.
JLL forecasts growth of 0.5% across the UK in 2017 and 1% in 2018 followed by 2% in 2019, then 4% in 2020 and 5% in 2021 but there is regional variations. Scotland is expected to be flat in 2017 then see 1% growth in 2018, 2% in 2019, 3% in 2020 and 4.5% in 2021. Wales is expected to do less well but catch up by 2020 with a forecast of prices falling by 1% in 2017, up 0.5% in 2018, up by 1% in 2019, by 3% in 2020 and then 4% in 2021.
Greater London is predicted to do well with growth of 1% in 2017, some 2% in 2018, then 3% in 2019, 5% in 2020 and 7% in 2021 but the prime central London market will not see as much growth with the JLL prediction showing prices likely to be flat in 2017 then 1% in 2018, 3% in 2019, 5.5% in 2020 then a slight reduction to 5% in 2021.
According to Neil Chegwidden, head of JLL residential research the real key to the outlook for the property market is the widespread positive attitude adopted within the UK. ‘Much will depend on the trade agreements negotiated, but with greater certainty the economic outlook should brighten along with consumer and business confidence as we head into 2019,’ he said.
‘We expect the UK housing market to be more subdued over the next two to three years. However, it will remain reasonably active with little chance of meaningful price corrections. Assuming Brexit negotiations are not too detrimental, we could see a rebound in London housing markets in 2020, before the rest of the country follows,’ he explained.
One concern on the horizon is that house builder activity could pull back from current rates of construction. ‘Although levels of new housing delivery were still woefully low prior to the referendum at least the direction of travel was positive and encouraging. This will now fall back again. We are predicting England starts to drop to 134,000 units next year,’ Chegwidden explained.
‘In London, we expect the house building slowdown to be more marked. Not only is London’s economy more vulnerable to Brexit but the housing market is also more reliant on investors, both domestic and international, and is hence more susceptible to buyer confidence,’ he pointed out.
But he also explained that the short term London supply prognosis implies that prices should bounce back when confidence returns. ‘The work stream of new supply should then pick up, albeit slowly. While central and local government policies will be pro-development, we question whether they will really be able to outweigh the more cautious approach adopted by house builders in response to weaker market forces. Most worryingly, both the UK’s and London’s housing shortages will be even more acute by this point,’ he added.
The report also points out that the forthcoming five year UK economic outlook is particularly uncertain and much depends on the nature and detail of the EU exit. JLL’s base economic forecast assumes a hard Brexit with access to the single market sacrificed in favour of immigration controls.
‘Despite this, the economic prognosis is not too detrimental for the UK. There is clearly downside risk to this quite benign outlook, if trade agreements and financial sector passporting rights are not favourable. However, this base assumption also implies that there is significant upside potential too, so the economy could prove more robust next year and could also expand faster thereafter,’ it concludes.