What’s grey and tall with big ears and an enormous trunk? It’s the elephant in the room, of course. And it’s been standing there, like an immovable object, throughout lockdown, the stamp duty holiday, and every other big property news story over the last few years.
The big issue we’re referring to, obviously, is the lack of properties on the market. After all, this affects almost everything else. Therefore, although other topics like record price rises have temporarily distracted us, these subjects can’t be fully explained without reference to the larger elephantine-sized problem in the background.
Consequently, it’s time, once and for all, to finally address the lack of stock plaguing the market. What’s causing it? What can be done? And will we finally see more properties coming to market in 2022. We answer these questions below with the help of Mark Hayward, the former chief executive of Propertymark who joined our team as an advisor at the end of last year. He’ll be popping up on these pages from time to time as our new go-to ‘residential expert’.
What’s the problem?
Housing stock fell by an astonishing 40% in the first eight months of last year. There was even dramatic talk of agents simply running out of properties to sell – as if homes were loo roll at the start of a pandemic. It never got that bad, of course, but would-be home movers were certainly staying put en masse.
As a result, the few properties that did actually come to market were fought over tooth and nail by increasingly desperate buyers. Demand far out-stripped supply and the average UK house price soared over £270,000 for the first time ever.
But despite all the headlines celebrating last year’s bumper stamp duty bonanza, there was a general feeling of unease. Could the record price inflation really be sustainable when it was driven by a lack of stock? And what would happen if buying properties became so competitive that people decided not to bother? The market could grind to a halt.
It was a big concern, therefore, that agents began to see a worrying trend emerge: homes were going under offer, with mortgages agreed and everything progressing nicely, but vendors were suddenly pulling out because they couldn’t secure a property to move to. Zoopla has called this the worst shortage in fresh listings since 2015. And it’s three and four bedroom homes – a mainstay of the market – that have suffered the most.
In the words of Mark, “nobody could have predicted this dire situation as we approach the second anniversary of lockdown… it’s not an easy problem to solve and it’s not going to go away soon”. So what is the industry going to do?
The shortage of available properties has caused a psychological catch 22 for potential movers. Some are reluctant to put their home on the market because they doubt they’ll find anywhere new. And yet, on the other hand, some don’t want to look at potential new homes because they doubt they’ll be able to sell their current home quickly enough if they do find somewhere they love.
Either way, fear of missing out is paralysing the market. There’s a perception that moving home is just too tricky at the current time; therefore, more and more people are staying put – thus making the problem even worse.
What’s more, others look at rising prices and decide that it’s simply too expensive to move right now. So they wait, in vain, for a fall in the market that simply never materialises. The result has been a crippling crisis of confidence and what Mark fears could be, in a worst-case scenario, “an irrevocable shift in the psyche of the homeowner”. Therefore, “there’s no guarantee that there would be a flood of properties coming to market even if it suddenly became easier and cheaper to move”.
Although the market has proved incredibly resilient in recent times, and shrugged off the end of both the furlough scheme and the stamp duty holiday, the challenges presented by 2022 look quite different. And they’re not exactly filling potential home movers with renewed confidence.
The first problem is the price of living crisis. With inflation climbing faster than an escaped helium balloon, and the price of energy climbing even faster, many people will be terrified of moving. After all, upping sticks isn’t exactly cheap. There’s also the prospect of rising interest rates as the Bank of England tries to combat inflation. More expensive mortgages are the last thing that the industry needs.
Meanwhile, house prices look set to remain high. We might see a levelling off but there’s certainly no crash on the immediate horizon. After all, demand looks set to exceed supply for the foreseeable future. Consequently, building more homes could be the sector’s only way out.
There’s just one problem: although Boris’s band has recognised the need to build more homes to alleviate the crisis – the Conservative manifesto pledged to build 300,000 new homes per year by the middle of the decade – they haven’t exactly hit their targets so far. What’s more, as Mark points out, “governments have stated their commitment to healing the problem for a long time without necessarily solving the problem”. Such promises, therefore, aren’t anything new.
In many ways, the facts speak for themselves. Only 216,000 new homes were supplied in 2020/21, which was down from 243,000 the year before. The National Housing Federation (NHF), incidentally, believes we need 340,000 new homes (of which 145,000 should be affordable) per annum.
Another potential spanner in the works identified by Mark is that “developers would need to be on-board for the necessary number of homes to be built”. And sadly, “they certainly don’t want to flood the market with new homes” at the current time.
Hope on the horizon?
It’s not all doom and gloom, however. After all, the government still has plenty of levers to pull if it needs to. For example, it could introduce greater incentives for developers. It could even give a leg-up to smaller developers in an industry dominated by larger firms. This might make it more appealing for them to accelerate the supply of new builds.
What’s more, the authorities could try to bring some of the UK’s many unoccupied or dilapidated homes back into use. A quick, friendly chat between Boris, Rishi, and Mike could even speed up our planning laws. Or they could make more public land available to build on. This process has been as slow as molasses for far too long.
There are also some economic reasons for optimism amongst the dark clouds. For example, the pandemic, finally, hopefully, is coming to an end. That should mean more building, fewer delays, and more people emerging from their lockdown bunkers with an appetite for moving. We also shouldn’t forget that movers can still benefits from generous mortgages with lower deposits.
There’s still plenty that agents can do, too. Some have been lowering their fees to encourage customers to list their home – a good idea as long as it doesn’t mean lower marketing spend – whereas others have been using their famous powers of persuasion…
The fact that some people are still moving home in the current climate proves that it’s still perfectly possible. Perhaps agents could point to the fact that it’s currently taking four months to complete on the average home. That should be plenty of time for customers to find both a buyer for their existing home and a gorgeous new pad to call their own.
Crystal ball time
So it’s time to answer that billion-dollar question (or at least try to). Will we see more properties on the market this year? It’s hard to say with certainty, of course. Some indicators say ‘yes’ and others say ‘no’.
Consequently, rather than giving a firm opinion, we’ll simply highlight one of the few pieces of hard evidence currently available: the number of people asking agents to value their home on Rightmove. The UK’s most popular portal has seen a highly encouraging 19% jump in valuation requests this month. That’s got to be good news - although, as Mark points out, “a stronger level of market appraisals isn’t necessarily unusual at this time of year”.
It will be interesting to see where this one goes in the coming months. In our opinion, it’s unlikely that we’ll see a sudden deluge of new properties flooding the market in 2022. But neither should we underestimate the property market’s recent tendency to surprise everyone. And if it does unexpectedly delight us all over again then Dumbo can finally, belatedly, find somewhere else to loiter.