UK Overcrowding Implications for UK House Prices
Housing-Market / UK Housing Jun 06, 2022 - 09:47 PM GMTBy: Nadeem_Walayat
The following is one of my custom UK housing market indicators that more clearly illustrates the degree of housing market crisis that Britain finds itself in as a ratio between the accumulative change in population since 1970 against the accumulative number of new completed house builds also since 1970 which shows the magnitude of the trend in over crowding of Britain's housing market that given recent mainstream press headlines based on academic studies clearly remain largely blind to the consequences of, because they still are unable to visualise the magnitude of Britain's housing crisis that has WORSENED since Britain voted to LEAVE the EU which should act as a warning to those who contemplate ever holding a second EU referendum, as it implies LEAVE would win by an even bigger margin next time!
The ratio illustrates the change in trend that started to take place during the mid 1980's that coincided with the Thatcher governments reversal of the policy for the construction of social housing and implementation of the right to buy scheme that resulted in the sale of millions of socially owned local council housing whilst at the same time putting restrictions on the the construction of new social housing. The Thatcherite measures were not just adopted out of spite for socialism, but instead was clearly as a result of academic government advisors looking in the rear view mirror at what had happened during the 1970's, namely the mass exodus of millions of Brit's who become economic migrants populating mainly North America and Australia and thus resulted in the over supply of UK housing.
This lack of insight of what was going to happen next laid the seeds for the property boom that began in the mid nineties as house prices responded to the lack of supply to meet new demand that has persisted since the mid 1980's. With Tony Blair's Labour government exacerbating the trend for the inability of supply to keep pace with population growth which ensured continuously persistent upward pressure on UK house prices that despite the great recession of 2008-2009 still showed an accelerating trend as new build supply that currently stands at 220k per year is set against government estimates for a requirement of at 300k per year, with 350k being a more realistic estimate to meet demand given the trend for falling household size, which thus ensures that the UK's over crowding crisis just keeps worsening with each passing year just as it has done or the past 20 years!
Remember the graph is a ratio of how over crowded Britain is, having gone from a ratio of 0.46 in 2000, when perhaps housing was largely affordable for Britain's hard working families with average house prices at £80k. To today's ratio of 1.11 (2021) that is worse than the previous years and thus average house prices are now £278k!
So I hope you now fully understand the true nature of Britains housing crisis and what the journalists and academics fail to see, hence their doom and gloom housing market crash is always coming headline stories in the mainstream press.
And this analysis does not even consider the fact that each year the total number of properties remaining empty continues to rise either as a consequence of being up for sale, let, legal issues or falling derelict. This total is now more than 1 million empty properties at any one time, a number which despite demand looks set to continue to rise as many of the derelict buildings will only come back on the market when they have been demolished and rebuilt, so erroneously counted as new builds when they should be classed as rebuilds.
Overcrowding Implications for UK House Prices
New build supply plays an important role in the housing market as it tends to average at approx 10% of the total number of annual transactions, which is more than enough to have a significant impact on the UK housing market especially as supply over recent decades has been consistently below that which is deemed necessary to meet the demands of an relentlessly increasing population which means that the UK housing market was never destined to replicate the housing busts of countries such as the United States or even closer to home of countries such as Spain, where that housing bust prompted many hundreds of thousands of British ex-pats to cut their losses and return to the UK, closely followed by unemployed Spanish and other PIIGS citizens seeking employment in a far more liberal and robust UK jobs market and thus introduce even greater demands on Britain's stressed housing market.
This suggests that the often put forward academic standards in terms of valuing housing market affordability ratios such as X3.5 salary towards the likely path for the UK house prices does not take into account of relentless new demand against lack of new supply to meet new demand that implies affordability ratios look set to continue to be pushed ever higher to new trend extremes, and therefore supports a long-term trend for rising UK house prices in real terms, i.e. expensive UK house prices look set to be here to stay for as long as the lack of new supply exists, especially as the UK population is expected to grow by at least another 5 million over the next 10 years and probably nearer 6 million which demands at least an extra 2.75 million homes to be built which is set against a realistic estimated construction of just 1.9 million new homes, near 1 million short! Which means Britain's over crowding housing crisis is going to get even worse and thus WILL act to drive house prices higher, despite the mainstream press mantra that house prices must fall because they are unaffordable!
The bottom line is Britain's over crowding ratio insures that no matter what arguments are put forward by academics that most people cannot afford to buy anymore so unsustainable house price rises must fall, instead the population growth fundamentals are such that their arguments just do not matter, the only thing that can effect this fundamental trend is if the UK literally doubles the number of houses built each year towards 400k, and even then it would probably not result in falling UK house prices but tend to index house prices to inflation. But of course that is not going to happen, the UK is not going to build anywhere near 300,000 homes per year let alone 400k, as the reality is that for most years UK house building will be short by as much as 100,000 completed new builds which will act to compound housing market demand vs supply pressures and thus exert further upward pressure on house prices with each passing year.
So this analysis continues to confirm that UK house prices on average will continue to rise for many more years. Until we start to see the over crowding ratio decline. Otherwise it acts like a coiled spring always primed to propel house prices into their next strong bull market just as the clueless mainstream media journalists proclaim that house prices are about to crash all because academics say they 'should' be falling. Where negative volatility in house prices in any given year is just going to prove to be temporary as the underlying fundamentals reassert themselves as we witnessed in the aftermath of the 2008-2011 bear market as house prices started to rise a wall of worry of why they would not rise due to a decade of stagnating wages when my housing crisis ratio clearly warned why house prices were about to enter a NEW bull market as my above graph at the time warned to expect.
This article in an excerpt from my most recent extensive analysis focused on UK House Prices Three Trend Forecast 2022 to 2025, where I pealed away multiple layers of the UK housing market of to arrive at a high probability trend forecast.
UK House Prices Trend Forecast 2022 to 2025
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Britains' Hyper Housing Market
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UK House Building and Population Growth Analysis
UK Over Crowding Ratio
Overcrowding Implications for UK House Prices
UK Housing Market Affordability
UK House Prices Real Terms Sustainable Trend
UK House Prices Relative to GDP Growth
UK House Prices Momentum Forecast
UK House Prices and the Inflation Mega-trend
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Formulating a UK House Prices Forecast
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Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.
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