- Optimism over housing market outlook is waning
- Supply of both pre-owned and new-build properties is limited
- Policymakers yet to adapt to stronger investor involvement
Signals of cooling in the housing market are growing stronger. The optimism over the outlook has waned, prices are losing upward momentum and the transaction volume has been falling for some time. This cooling is taking place against the background of a weakening economy. GDP growth is slackening towards the structural rate of 1½%. With fewer jobs being added, unemployment may edge slightly higher in due course.
We maintain our forecast that house purchases will fall by 5% in 2019. Transactions are under pressure now that sustained price increases have eroded affordability. Moreover, there are few properties for sale and the catch-up demand from homeseekers who postponed their move during the crisis has been largely met. The moderation of the price increase to 6%, one percentage point above the historic average, that we previously forecast has also been left intact. Prices are receiving support from the low interest rates and lagging construction output. The number of new-build completions is trailing demand due to the lack of building locations and high construction costs.
The government is still struggling with the new role of investors. To protect first-time buyers and prevent excessive rent increases, it is brandishing measures that have alarmed investors. After the 1950s, the supply of private rented housing dried up due to favourable conditions for the social rented and owner-occupied segments. Recent years have brought a turnaround, however. Policymakers are worried about the renewed interest from investors. Both sides must learn to understand each other in order to work constructively together.