Performing against expectations: Residential Property
Recent market drivers
Most people spent much more time at home over the last year than they may have been expecting. As a result, the housing market saw surprising levels of activity as those households with the financial security to do so sought homes that could act as workplaces and schools, as well as places to live. A Savills survey in April 2020 found that buyers were prioritising space to work from home, access to outside space and more rural locations. 49% of respondents mentioned working from home more as a driver for their house move. That figure rose to 52% when we repeated the survey in March 2021, but the popularity of rural locations had fallen slightly.
Despite the economy contracting by 10%, house prices rose by 7.3% over the year, as the stamp duty holiday added a sense of urgency to a market. Remarkably, transaction levels ended the year just 11% below those of 2019. Our calculations show that home buyers spent a record £120.5bn in Q4 2021, some 22% above the previous high in the third quarter of 2007.
In terms of development, the picture has been more mixed. New homes completions were unusually high Q1 2021, at 62,971 in England, according to Energy Performance Certificates (EPC) data. This has been driven by housebuilders prioritising completions of homes under construction to satisfy high levels of demand before the original Stamp Duty and Help to Buy deadlines. But despite the recovery, the number of homes delivered in the year to Q1 2021 in England was -13% below the previous year at 220,726. Higher rates of delivery over the last three quarters have not made up for the disruption of the first lockdown in Q2 2020.
What does the future look like?
The second half of 2021 and beyond presents more complex questions. There is potential for a lull in the market once the stamp duty holiday ends and the economic realities of lockdown are brought more sharply into focus with the winding down of the furlough scheme. A tapering of the stamp duty relief in the period to September will support transaction levels, but we do expect the market to cool from its current level.
In London and the wider South East, housing market activity will be constrained by affordability pressures, particularly if interest rates rise from their current historic lows. But at the same time, some households have been able to build up savings during the pandemic, with the household savings ratio increasing from 9.6% in Q1 2020 to 29.1% in Q2 of 2020, a record high since the series began in 1987. This build-up of savings will enable some buyers to get on the housing ladder, trade up, or invest in improving their existing property.
It also remains to be seen how much the factors that made people reassess their living space, like increased working from home, will persist. According to the ONS the proportion of people working from home more than doubled in 2020, though it remained a minority of overall workers across the UK. The impact has been unevenly spread; 48% of those employed in London have worked from home, but as few as 14% of employees in Burnley and Middlesbrough.
If hybrid models of working persist, we could see the housing market become less commuter driven, particularly in the areas surrounding major cities. 43 out of 50 major firms interviewed by the BBC in May 2021 stated that they anticipated staff would continue to work from home for two to three days per week indefinitely. If this results in a reduced need for office space, it could lead to a permanent reshaping of city centres, aided by reforms to planning policy for change of use which will bring more residential into formerly commercial areas.
Map Title: Home working patterns in 2020
Map Source: Savills Research using ONS
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