Rising house prices are contributing to increasing inequalities in the UK, say academic experts
Bayes academics believe location and supply are key short-term drivers for those wanting to buy homes, as new data reveals surge in prices.
First-time buyers and those in low-income regions may be most heavily impacted by the rise in house prices, say Bayes Business School academics.
New data from building society Nationwide shows that average UK house price rose by 0.9 per cent last month, after an increase of 0.7 per cent in October, taking the average UK property value to £252,687. This makes the average house price 10 per cent higher than a year ago.
Professor Les Mayhew, Professor of Statistics at Bayes, believes that market prices in the next 10 years will be driven by demographics and housing supply. While people may react to changes enforced by the pandemic in the short-term, he believes the market is due for ‘a correction’ in the medium-term.
“It is important to split out the short-term impact from the medium and longer term. Prices in the next decade or so will be driven by demographics and housing supply. It is likely that as the ‘baby boomers’ generation die out, prices will be driven down, while the construction industry – whose business model is built on maintaining high prices – pulls in the opposite direction. The market is due for a correction, but we simply don't know exactly when it will occur.”
Dr Nicole Lux, Senior Research Fellow at Bayes, agrees with Professor Mayhew that timeframe plays a crucial role in assessing the pattern of house prices, adding that supply cannot compete with demand.
“It depends very much at what part of the market you are focusing – the price of two-bed flats in London has declined and rental values have dropped because people are moving to the countryside looking for houses with garden. The London market has been struggling for a while now, as typical one or two bed flats or new development homes are not selling.
“Popular retirement and tourist locations have seen house prices boom, including counties such as Cornwall and Dorset, and there is a shortage of houses now when compared with the number of new people wanting to migrate there.”
The job market and home working are impacting sales
The new data highlights that the number of housing transactions so far in 2021 has already exceeded the number recorded in 2020.
Professor Mayhew and Dr Lux say that the pandemic is playing a sizeable role in short-term housing decisions. This is exacerbated by the prospect of higher interest rates being introduced by the Bank of England in line with inflation.
Dr Lux, who is the lead author of the bi-annual Commercial Real Estate Lending Report, said:
“House prices are showing the effects of a bubble, due to the tax incentives and stamp duty breaks that were afforded to buyers during the Covid outbreak. This clearly had an effect, even in low-income regions, where house prices were expected to fall during the pandemic.”
Professor Mayhew said: “In the short-term people are reacting to changes in the jobs market and working from home. The flexibility of location means people can afford to buy a bigger house at the same price in the sticks than in the Capital – and, arguably, a perceived better quality of life.
“Although career prospects may be lower if you are not in the office, that is a price many are willing to pay. Also, many jobs are moving online in any case.
“Additionally, people haven't been spending as much during the pandemic, but now that is changing because of certain factors. Worries about inflation and the higher house prices are fuelling this fear – which makes it something of a self-fulfilling prophecy.”
Government can support ‘generational levelling-up’
A previous study by Professor Mayhew and the Centre for the Study of Financial Innovation (CSFI) shows that there should be an increased focus in supporting ‘last-time buyers’, to encourage older homes owners to downsize so that there are not too many houses that no longer suit the needs of the older generation.
Professor Mayhew says the government must do more to support those looking to get onto the housing ladder, and those at the other end of the scale.
“What is key now is that young people will find it ever harder to get on the housing ladder, as I've said many times before, and that older people will continue to under occupy large homes that could be better used by young families.
“To me that represents market failure and that is where the government should be intervening to move the needle on to a better and fairer path – a form of generational levelling-up!”