Will stalling house building increase house prices?

Will stalling house building increase house prices?

As the headline suggests, the UK is woefully behind its targets when it comes to house building and creating new homes.

Some years ago the government made ambitious pledges of new homes totaling hundreds of thousands per year in order to address the very quickly widening gap between supply and demand in the housing market.

One crucial issue for any modern government, however, is trying to strike the right balance between providing more stock to the market and causing prices to drop.

It can be done if approached in the right way, but failing to act certainly means that the gap between supply and demand continues to widen, and subsequently puts upward pressure on prices that is resulting in price inflation.

Whilst any property owner or investor will always be happy with increasing prices, it needs to be sustainable and done in a way that ensures nobody loses out unnecessarily.

Is UK house building stalling?

A concerning trend that has been emerging recently, along with the rise in the cost of living, is that hundreds of UK construction companies are going bust thanks to a rise in the cost of materials.

According to City A.M, ‘The latest government insolvency data shows that between August and October 2021, 797 construction firms went bust, up by more than a fifth compared to the previous three months, the FT first reported.

‘With costs escalating and labour problems intensifying, it’s little surprise that almost a quarter of firms say turnover has decreased and more companies are going to the wall,’ said Susannah Streeter, senior investment and markets analyst Hargreaves Lansdown.’

This means that even though there is enormous demand for new housing, there is a real and sustained struggle to find companies to physically build them.

This, in turn is having an effect on the prices in the market and driving them higher.

Advice for UK property investors

Ultimately, it’s no bad thing that prices are increasing across the property market, however, it’s a problem that the government, or a future government, will have to address at some point.

That being said, it’s highly unlikely, if not near impossible, to imagine that any government in the next 10 years will be able to build enough housing to meet the current or future demand.

House prices in the UK have increased almost consistently for the past 30 years, save for recessions and financial crashes. Of course, a lack of new housing has contributed to this but not been the sole factor.

It’s a good time to be a property investor in the UK – the market is stable, growth is consistent and demand is growing. When the markets around the world in stocks and other investments are a rollercoaster thanks to covid and international tensions, UK property is a very good bet indeed.

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