UK Residential Property Shortage...?
Much has been written about the stock shortage in the UK residential property market but in this edition, we roll the current trends forward and ask when does the whole thing grind to a halt as there is nothing left to sell?
The property market is not a rational or efficient market by any stretch of the imagination, there is too much whimsy but moreover, the compelling fact that we all need a roof over our heads to allow for that.
We appear to be caught in a negative downward spiral; 'I will not put my house up for sale as I cannot see any houses listed that I would be interested in buying.' Logic would dictate that at some point the rise in prices would bring more stock to market, but the cost of change of property is high, and whilst affordability is as good as it is ever likely to be in terms of debt servicing costs this is not enough to change the current dynamics.
It is not likely that this doom-laden scenario will come to pass but you never know.
The Headlines:
• The volume of property stock available for sale has reduced by a third in the last year
This has affected every single UK region
• Assuming the market operates with the same levels of inflows and outflows experienced in the last three months, all areas of the UK (save Inner London) will cease to have an effective property market in the next twelve months
With the Southwest, this will happen prior to the middle of 2022
Nine months ago, we were amongst the first industry commentators to highlight that the property market was running out of stock. This is now widely publicised in the industry and right now, you can’t really read an industry publication without the supply issues and stock shortage being mentioned in almost every article.
Across the UK, there are now only 400,000 available properties for sale. This time in 2020, this number was 630,000 – so properties available for sale have reduced by a third in the last year.
We decided to look at this issue again, but instead of telling you simply that the great stock shortage is an issue, this time we explored this problem from the perspective of forecasting when the market will completely run out of stock and therefore grind to a halt.
The analysis makes interesting reading, but first, let’s look at the issue in more detail.
The Great Property Stock Shortage
The following chart shows the movement in available properties for sale by UK region and it quite clearly paints a depressing picture…
From 2020 to 2021, available properties for sale have reduced across all UK regions. The same is also true when comparing to 2019 stock levels, save Inner London.
The worst region is the Southwest, where available properties for sale have plummeted by 46% in just one year.
The Winding Down Model
To predict how long each region will take to run out of stock completely, we had to create a model using current stock and likely net inflows and outflows.
For each UK region, we observed the actual available stock of properties for sale at the start of December 2021. To calculate stock inflows or the volume of new property coming to the market, we averaged the volume of new for-sale properties over a three-month period from September 2021 to November 2021.
In terms of stock outflows, or the volume of new property coming off being available for sale, we averaged the volume of sales agreed and the volume of withdrawn properties over the same three-month period.
The results (from North to South) are in the following table…
What this model suggests is if the market continues to perform as it has done over the past three months, there will be absolutely no properties to buy in the UK regions above inside the number of months listed.
The Southwest, once again, is the hardest hit in that by the end of June 2022, there will be no property left to buy. Inner London at the opposite end of the spectrum will not run out of properties to purchase until the end of March 2023.
But Markets Adjust - Right?
In “normal” circumstances with any market, where demand is too strong for supply, prices rise, then the market re-adjusts to find equilibrium.
One of the issues we have right now however is the affordability of housing. The rise in prices required for the market to find equilibrium might be too much to be sustainable.
Perhaps more importantly, there is something very special about the property market that does not exist in a lot of other markets. If you sell your house, you need to buy another one or find somewhere else to live. Four times out of five, a seller is also a buyer. To this end, we need to look at what is stopping people from listing their property for sale as it stands. For most of us, it’s not about the price we will get for our current home (although that comes a very close second). It’s about finding a place to move to that matches what you need and want. If there is a shortage of property to buy, then this will stop people from listing their current home for sale. If that is you - please don't wait!
It’s a vicious circle and I’m afraid we have not got long left to attempt to stop the downward spiral. Only time will tell.
If you are considering a move, but cautious about selling yours, please get in touch for a discussion with one of our expert team - we'd be happy to help. You can reach us on 03300 577654.
Just curious about your value? Then you can get an instant online valuation HERE.
Credit: Twenty EA December 2021