Is the government’s house building plan doomed?

It has been one of the central facets of government manifestos for nearly 15 years now, but nobody seems to be making any real progress in getting new houses built to ease the housing crisis.

Is the government’s house building plan doomed?

For investors this is good news as supply is highly unlikely to meet demand and prices will continue to rise in response. Even ‘affordable’ new builds are often marketed at over £200,000. Regardless of average house prices across the country, it really is a mammoth amount of money for anybody on the average salary in the UK, with or without government assistance.

In its most recent election pledge the government sought to build 300,000 new homes per year across the UK but that target is likely to be missed.

New research released this week by the Office for Budget Responsibility (OBR) has said that just over 233,000 houses will be added to the national stock for the year 2017/2018, with 2018/2019 predicted to fall short of 250,000. If that weren’t disappointing enough, the OBR has predicted that new housing stock will not exceed 250,000 per year for at least five years – and it is only for a minimum of that long because they don’t predict any further into the future.

It was hoped that a huge increase in house building would increase supply to stabilise demand, and that government subsidies through Help to Buy and other schemes would open up the ladder to new buyers, but realistically this has failed to take off in a meaningful way.

However as it stands there is also the fact that attitudes towards owning homes and renting long term have shifted in line with lowering levels of home ownership across the UK. Whilst most of the ‘millennial’ generation don’t see home ownership as a huge priority, such a shift would have been unthinkable for their parents.

This has led to a Private Rented Sector boom in the inner cities and urban areas around the UK such as Manchester, Leeds and Sheffield which are seeing a significant influx of young renters and professionals who want to be part of the increasing and exciting local tech economies growing in the regions.

This in turn has meant that investors from the UK and abroad have been flocking to these cities for a number of years now, and have been rewarded by high quality tenants, growing rents and impressive yields.

There’s no realistic sign that this is set to abate at any time in the near future, either, which almost all evidence pointing to a continuation of the so-called housing crisis and demand for PRS in urban centres.

If anything, news that the government are looking certain to fail to meet their house building target shouldn’t shock anybody, least of all investors who have been tracking such trends for a while now, and should encourage them to more of the same throughout 2019 and beyond.

yieldit vertical - April 2019

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