While a plethora of large institutional investors are becoming involved in the UK residential for rent sector, one expert says the traditional 'for sale' market is in danger of overheating as house price growth surges again.
Stuart Law, CEO of Assetz Group, said there was indeed an ‘urgent’ need to build more homes given the gap between supply and demand.
He said: ‘I must stress that the current dynamics are unsustainable. Without a better balance between supply and demand, we run the risk of a market that overheats, with many aspiring buyers unable to get onto the ladder or jump up to the next rung.’
‘As pressures on household incomes grow, more people could fall into this category which starts to become an unhealthy pattern for the wider market. We need to aim for sustained, steady periods of growth, rather than a cycle of boom and bust.’
Law commented after the UK’s Office for National Statistics said UK average house prices increased by 10.9% over the year to February 2022, up from 10.2% in January 2022.
The average UK house price was £277,000 (€332,000) in February 2022, which is £27,000 higher than this time last year.
Explained Law: ‘Following two years’ of unprecedented growth, the data shows another month of house price increases. The pandemic has re-shaped the way we chose to live and where. As a result, the market continues to be defined by a dramatic supply and demand imbalance, with demand far outweighing available housing stock in most locations, despite the rising cost of living.’
‘I still don’t foresee housing price growth slowing as quickly as some think it will. While interest rates are on the rise, they still remain low by historic standards, supporting relatively cheap borrowing in the short term, and justifying many buyers’ decision to push on despite rising prices.’
‘I would still be surprised to see rates rise much beyond 1% this year, if at all, so cheap borrowing could support demand and pricing for some time yet, in tandem with powerful post-pandemic lifestyle drivers that remain one of the main factors behind the housing market boom.
He called for a mobilisation of housebuilding at scale, and, crucially, revitalising the SME housebuilding sector, which could deliver thousands more homes if supported properly.
‘To do this, we need bold planning reform urgently to lower build costs for construction companies, and we need to use all the financial tools available to help housebuilders deal with immediate costs associated with pressures on global supply chains.’
‘This means public sector funding through the levelling up agenda, but also harnessing the appetite we’re seeing from private investors to support the housebuilding market.'
Because of the housing shortage and affordability issues, many institutions have been raising Build-to-rent (BTR) and private rented sector (PRS) funds. In just one of many examples, Edmond de Rothschild Real Estate Investment Management said in March it had secured around £85 mln (€101 mln) for its Residential Investment Fund UK, which invests in the PRS sector in the lower-to-mid market.
In April, Mayfair Capital’s Property Income Trust for Charities fund (PITCH) said it had acquired the first properties in a move to invest in private residential properties for rent.
