The tricky task of balancing housing supply and demand

21 June 2010

The situation we find ourselves in reminds me of my economics lessons at school, where we learnt about supply and demand.

All that theory is now coming vividly to life, particularly in the housing and mortgage markets - and especially as we emerge from recession.
Of course, housing transactions are key for our industry. They generate mortgage and insurance business, estate agency viability and cross-sales opportunities, as well as improving confidence.

This is particularly evident in the new-build sector. The recent demise of Home Information Packs was a shot in the arm for estate agents as the number of sellers increased by more than 30% in a single week.

But has this increased supply resulted in more buyers taking the plunge? It’s probably too early to tell but housing transactions are not much higher this year than they were in 2009, with 65,000 recorded for April 2009 compared with 71,000 in the same month this year.

In fact, the number of transactions rose steadily in the early part of 2010 but fell back in April, according to HM Revenue & Customs.

House prices rose in 12 of the past 13 months, according to Nationwide Building Society, with values in May up 0.5%. This took the average house price to £169,162. That said, Nationwide also notes that annualised house price inflation has fallen from 10.5% to 9.8%.

So is the housing market stalling again?

Well, we are operating in an uncertain landscape. Although prices and transactions have started to rise the forthcoming austerity measures coupled with a lack of remortgaging activity indicate that the market is likely to remain lacklustre.

Potential buyers are concerned about the spectre of increased taxes and the prospect of an even tighter squeeze on their finances as well as job security, especially if they work in the public sector.

So while the end of HIPs has boosted supply to some extent it is the demand side of the equation that remains fragile.

In terms of new-build, the National Housing Federation says the number of new social homes built could slump by 65% this year due to a combination of proposed changes in planning regulations and the impact of government spending cuts.

The Homes and Communities Agency stated recently that it would have to reduce affordable housing spend by £230m. This will affect house builders in a significant way.

Affordable homes are often an important element in new-build schemes and the key to securing planning consent through what are known as Section 106 agreements.

Without the social housing element many developments may not gain approval, especially with the scrapping of regional building targets.
Let’s hope the government can find a way to square the circle when it comes to new-build.

For years this country has missed new-build targets and given a combination of the rising number of single-person households and European Union immigration trends, the need for more houses is increasing while the supply and demand equation remains as finely balanced as ever.

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