Property and Construction
Expansion & Improvement
An Englishman’s home is his castle, so the saying goes, and that’s never been truer than over the course of the pandemic. Great emotional value has been placed on our homes in recent times, and that’s driving a growing trend in what buyers want from a residential property.
The UK property market is looking buoyant, despite high inflation and the end of the stamp duty holiday. But how long can this last? And how should property developers and landlords react to the unpredictable nature of the market with increasing inflation and interest rates.
Amilios Costa looks at the key trends in residential and commercial property and highlights why smart thinking should be at the heart of your property strategy.
A challenging time for property companies
There’s no denying that it’s been a tough two years for the property sector, over the course of the Covid pandemic. Properties weren’t selling, there was no stock on the market and people were happy to stay put in their existing homes and sit things out.
But now that we’ve opened up and recovery is in the intermediate stages, we’ve seen the property market become stronger.
Quantitative easing and the impact on residential house prices
According to research by RightMove, the average asking price of residential homes rose to an all-time high of £338,447, an increase of £21,389 (6.7%) since the start of 2021. Prices are on the up and houses are selling.
To help boost this recovery, the Bank of England has continued to use quantitative easing to make more money available for mortgages and lending. But what exactly is quantitative easing?
The Bank of England first introduced quantitative easing in 2009. In very basic terms, it’s the ability to ‘print money’ and introduce it into the economy, although no actual physical money needs to be printed. The net effect of this is to generate more money within the UK economy, allowing banks to lend more, consumers to borrow more and cash to begin cycling more freely as consumers make purchases and kickstart some form of recovery.
Quantitative easing has been used extensively during the Covid pandemic to stabilise the economy, but it’s also been seen as a cause behind the increasing prices of property in the UK property sector.
Lower interest rates and a move to suburban living
The net effect of quantitative easing is to lower interest rates. Because interest rates are low, people are borrowing for all sorts of reasons. And this has led to people starting to buy houses again, where prices have gone down and finance is widely available. This in the last few months has been compromised by rising rates, albeit marginal.
People are putting their money into assets like property, rare watches, artworks etc and that’s what I’m seeing in the market when talking to clients. There’s cheap money around and that’s pushing up house prices in the newly desirable suburban residential market.
The changes in the way we now work have meant that people now think it’s great to work from home. In fact, a recent YouGov survey found that three quarters of people working from home think their employers will allow them to continue to do so after the crisis ends. Because of this, people increasingly don’t want to live near the centre of big cities like London, Manchester and Birmingham etc. Instead, people are starting to move out to the suburbs and get the benefits of bigger houses, more outside space and all the other suburban benefits.
Getting smarter with how we work
I do think that commuting will go back to normal over time, but people have got smarter with how they work. I don’t think the pandemic has changed the world completely, but we do have to factor in the need for a mix of working environments. You need the communication benefits of the whole team being in the office, paired with homeworkers who have houses with great broadband so they can do Zoom calls when working from home.
In my view, you need to be in the space where it best suits you to get the job done, and that’s not always going to be at home. Some of us will be good working from home, some of us will be better off in the office. That hybrid working approach is going to be the way forward.
As far as the residential property market goes, the outskirts of big cities have become a lot more popular. In London, specifically, the central residential markets have also dipped because foreign buyers weren’t buying – they couldn’t even get into the country during lockdown.
Central London is always going to be there, especially from a residential perspective. But we are seeing some real changes in where people live and work.
The impact on development and building
House prices may be rising, and residential buyers may be in the market for a new suburban home. But there are still challenges for the construction sector and property developers to overcome as we look to stabilise the UK’s recovery and get building back on its feet.
Key challenges at present include:
A real shortage of labour – you can’t get a builder as many European workers have gone to Germany, where conditions are looking far more attractive. Finding the labour for your build or development is becoming increasingly difficult
Costs of raw materials have rocketed – the costs of raw materials have risen, meaning that the average cost of a build has also risen sharply. And with the current supply chain issues, it’s getting harder to source these raw materials. Materials like steel and timber are in short supply, which is holding back a lot of projects.
At the moment builders are quoting by the day, rather than giving full costs for the build, because they just don’t know what the real-time costs of raw materials or labour supplies will be. Brexit and Covid has had a big impact on both the labour supply and the supply chain, and that’s going to take a while to sort out.
In the UK, the end of furlough has had an impact too. Where companies can’t afford to keep people on, those roles are being lost.
An unpredictable property market
It’s quite an unpredictable market out there at the moment as interest rates will rise to curb inflation.
If people can’t afford the house they want at the market rate, the temptation is to pay more to secure the house you want – and that pushes prices up. Whatever happens, your house is always there and you can enjoy that, have a dinner party or have friends over etc. An Englishman’s home is his castle, and we’ve all begun to see the value in having a castle in the right location, with the right local conveniences and the things we need to keep up our desired lifestyle and our new work patterns.
The problem for the younger generation will be keeping up with escalating house prices and finding property in the areas where they may want to live, outside the big cities. That’s going to be very tricky for Generation Z to attain, and reports are showing that younger generations are already being priced out of rural and coastal areas.
Updating your strategy as a developer
As a developer or property investor, you need to be very mindful of what the Millenial and Gen Z generation want from their houses. During Covid properties with outside space sold quicker and with a premium.
To meet the needs younger buyers, think about:
Increasing your building in suburban areas – houses in the green and leafy spaces on the outskirts of a major city are where younger buyers with families want to be. So focus your housing developments outside of the main city.
Bigger garden space – rather than using up every square inch of land to squeeze in more houses, developers need to include significant garden spaces, so the properties have more room for outside activities and are in keeping with modern buying habits
Upping your green credentials – think about sustainability and greening the project, so buyers are attracted by features like built-in solar panels, well-insulated buildings, and also laying on the right communications infrastructure, so houses have excellent broadband etc.
Get the property advice you need to grab these opportunities
Things have changed in the property market in recent times and people have more defined needs. People are certainly more life conscious and more property conscious. To paraphrase a song by The Specials, ‘Enjoy yourself, it’s later than you think’, and I think that’s how people are looking at their homes and the locations they choose now.
House buyers don’t necessarily want to live in an inner city just to shorten the commute. They want a nice house in a good suburban location that’s on good transport links into a city centre.
If you’re looking to keep your property portfolio relevant in the new market, we’d love to chat with you and find out how we can help you evolve your outlook and planning.
If you’re looking to update your property strategy, get in touch for a chat with our advisers.