"It is important for developers, in particular, to be agile enough to overcome short-term market volatility whilst progressing forward with a clear, long-term strategy."
- Chris Gardner, CEO at Atelier
A new report predicts a significant upturn in the housing market, pointing to a sustained period of recovery, stabilising interest rates and growing demand for housing.
The report is by development finance lender Atelier and compiled by Nicole Lux, senior research fellow at London’s Bayes Business School.
Following analysis of primary data sources, dating back to the start of the ONS house price statistics in 1969, the report examines the long-term historic trends and forecasts a medium-term outlook for the key factors driving the property market, including property values, inflation, interest rates, demand, supply, mortgage rates, unemployment and population growth. It concludes that the UK is likely approaching the bottom of the residential property cycle, with an upswing expected shortly.
With the UK currently experiencing a period of decelerating growth in house prices, the report highlights a number of historic trends that suggest that this will be a brief period of decline followed by a prolonged period of recovery. Key findings include:
• House prices are in their sixth period of decelerating growth: In the last 55-year period, house prices have experienced significant deceleration of growth six times and we are currently in the sixth period, which began after ONS recorded a 3.96% decrease between July-August 2023.
• Decline is short lived, recovery is prolonged: Periods of price decline last an average of 16 months and following each fall there has been a significant and typically prolonged recovery period. The growth after a period of decline is much larger in magnitude.
• Residential property values are safe: Since 1987, residential values have grown at 6.8% per year, a little more than double the rate of inflation.
• Interest rates are expected to stabilise: A period of readjustment should be expected following the recent rate hikes, but the high rates pre-dating 2009 should provide some relief that house prices and demand are not dependent on this factor alone.
To determine structural demand for housing, Atelier identified population growth, unemployment rates and household formation as key contributing factors for residential demand.
UK unemployment is close to historic lows, leading to strong structural demand for acquiring residential assets. When interest rates were high in 2007, unemployment was much higher than today.
UK population growth is also at its lowest since 2001, representing a fall in a recent trend of high growth. However, aggregate demand for housing is expected to be driven by changing household formations.
Between 2018 and 2028 the number of households in England is projected to grow from 23.2 million to 24.8 million, an increase of 7.1%. This equates to an average of 164,000 additional households per year. By 2043, the number of households is projected to increase to 27 million, an increase of 16.2%.
Historic analysis of indicative factors therefore suggests that the UK housing market is heading for recovery. Following a period of decline, a period of recovery in house prices is predicted, accompanied by the stabilisation of rates as well as strong and growing demand for residential property.
Chris Gardner, CEO at Atelier, commented: “It has been a pleasure to commission Dr Nicole Lux again on this critical piece of research. We wanted to provide data and insight to SME property developers to help them plan for the medium and long-term. In the UK, private enterprise delivers 60% of new housing – precisely because these developers are agile and can respond quickly to shifts in the marketplace.
"It is important for developers, in particular, to be agile enough to overcome short-term market volatility whilst progressing forward with a clear, long-term strategy. Property is a long-term asset class, and with the data now available to us, we are positive about the future, and we are here to provide finance solutions to professional property developers ready to act.”
