UK Guide To Raising The Value Of Your Home

UK Housing prices will go up say experts

House prices are going to rise again. That may seem a scenario far removed from today's headlines about falling prices and haemorrhaging values. But, according to an influential economics consultancy, prices have to go up for one simple reason - government targets for the minimum number of new homes are just not being met.

A year ago, 'targets' were the order of the day. Gordon Brown announced that in England alone there should be between 240,000 and 297,700 homes built annually until 2016, and that, in total, between 2.9 million and 3.5 million new homes should be built by 2020. In 2007 - before the downturn hit the new-build market - some 174,900 homes were completed: still below target but on an upward path from previous years.

Yet at the start of autumn 2008, figures for housing starts suggest that this year's total will be only about 110,000, according to the House Builders Association. It predicts 2010 figures may well fall to a dismal 55,000. The consequence is that the new-homes industry is imploding. The fewer homes built, the fewer people work in the industry, making the downturn even worse. Similar targets, and shortfalls, exist in Scotland, Wales and Northern Ireland.

Jim Ward of estate agency Savills predicts new-build levels in England will not have returned to 140,000 per year - scarcely half the government's target - even by 2013. He says: 'Once sites are mothballed, there's inertia in the system as it takes time to rebuild teams and return to the same master-planning position on more complex sites.'

Recent measures announced to kick-start elements of the housing market will do nothing to improve building rates. Stamp-duty changes may boost sales but not new building. Allowing housing associations to buy unsold houses and flats mops up stock but does not help overall supply meet demand.

The slump in building will not just affect the private sector. Many of the affordable homes made available to key workers and the low-paid are built as a result of so-called 'section 106' deals - that is, arrangements by which developers have to build a number of affordable homes to get an agreement to build private-sector properties. With private sales at a standstill, developers have downed tools on residential property across the UK, so section 106 properties are not being built either, creating a shortage of properties exactly where demand for affordable homes is strongest.

That fundamental mismatch of supply and demand, of course, will fuel a new housing boom if the Centre for Economic and Business Research's forecasts are correct. 'The sharp drop in completions will mean higher prices if and when credit markets sort themselves out,' says CEBR senior economist Ben Read. 'The government will be concerned that, with every year that passes, it gets further away from its targets. With developers unlikely to respond quickly when the market bottoms out, prices may recover more quickly than people imagine.'

That price rise may be every bit as large as the current price falls. A report published last month by the National Housing Federation suggests the average house price in England will rise 25 per cent by 2013. NHF chief executive David Orr says: 'House prices will increase substantially over the mid to long term. Demand is going up, while the supply of new homes is going down.'

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Source - Guardian.co.uk