The housing market in north Leeds continues to remain very buoyant, both for sales and rentals. There was press speculation that the phasing-out of the Stamp Duty Holiday would result in house prices falling. We’ve seen no reduction in the level of demand over the last couple of weeks. Families are as keen as ever to purchase quality family homes. With historically low interest rates, the current offering of mortgage deals appears to be fuelling buyer’s enthusiasm, many willing to out-bid any competitors.
Buy-to-let investors are also as busy as ever, especially those with substantial amounts of cash sitting on deposit earning next to no interest. Interestingly, we’ve seen a reduction in demand for cheaper buy-to-lets. For example, sub-£100k despite them offering yields of 6%+. The demand is now stronger for the higher priced investments, even where they are returning gross yields of less than 6%. It would appear ‘quality rather than quantity’ is leading the way.
Demand for flats and apartments is not as strong as it is for family homes, especially for flats where there’s no private garden or direct access to outdoor space. I am confident this is a legacy of the pandemic lockdowns, when people were desperate for a garden to sit in, and that over the next few months we’ll see demand for these flats pick up. There are plenty of young professionals who are too busy to bother with a garden and who, traditionally, have been satisfied with seeking outdoor space in parks, local beer gardens, etc. I’m confident as life returns to some sort of ‘normal’, demand in this sector of the market will return.
Rental demand has surprised me in the last two weeks. We’ve seen a surge in demand from tenants and currently everything we list is oversubscribed, with many properties now being let on the first in-person viewing. The pandemic forced us to adopt the use of Video Tours which have proven a ‘big hit’ – not just in reducing the number of in-person viewings and thereby reducing the risk of spreading Covid, but they are actually ‘pre-selling’ the property. On in-person viewings we’re hearing applicants say “This is just what I expected from watching the video – where do I sign?”
With properties being over-subscribed, we’re able to redirect the disappointed applicants to other properties we have on offer. As these applicants are already ‘pre-qualified’, we’re able to let properties quicker, which our landlords are delighted with.
Although the level of demand works in our (and the landlord’s) favour, we recognise there are many disappointed applicants. We would ideally like to have double the housing Rising Demand in the Property Industry on our books (if you have a property to let, get in touch!) so that we can accommodate every applicant who comes to us. But, we’re no different to other letting agents in Leeds, there isn’t the housing stock to meet demand.
We’ve been reading about housing shortages in the UK for the past 20 years but house building just isn’t keeping up with the growth in housing demand. It’s simple economics that excess demand over supply leads to an increase in prices. Hence, property prices and rents continue to rise.
The graph below clearly shows the decline in the supply of new homes since the 1970’s.
The population of the UK during this same period has continued to increase. I recall Savill’s Housing Report back in January this year stating that between 2010 and 2020 there were 1,819,200 new homes built in England, yet the population had grown by 4,090,600. For every new home built, the population grew by 2.25.
One could argue that this simple analysis doesn’t take into account families where new born babies are living with parents, etc. I believe the increasing divorce rate (which is creating more demand for smaller housing) counterbalances the argument.
The Worldbank data for the Urban and rural population of the UK (see graph below) clearly shows a reduction in those people living in rural areas, with a significant rise in the population of urban areas. I’ve been reporting for some years on the number of people seeking rental property from us coming from outlying areas of Leeds. This would appear to be common across the UK urban areas.
From my conversations with Propertymark colleagues around the country, cities have been seeing the highest level of housing demand. The pandemic has proven to many people that working effectively from home is possible. Whether we are going to see this moving forward, with people wanting to live and work in more rural or seaside areas, remains to be seen. I suspect Government will need to ensure superfast fibre broadband covers the whole country before this can happen!
This week, data from the Bank of England shows inflation beginning to increase. One of my contacts tells me some of the Monetary Policy Committee members are moving from being ‘dovish’ to ‘hawkish’, intimating that should this inflationary trend continue, interest rates will have to rise as a measure of control. Inevitably, this will lead to higher mortgage payments. Higher interest rates usually have a calming effect on the sales market.
Rising interest rates will not have any impact on demand in the rental market. Some will say that higher interest payment on debts will affect tenant’s affordability, curbing the level of demand. I accept some tenants will be punitively affected by a rise in interest rates, but I suspect there will be plenty more tenants in the market who are not adversely affected by the rise in interest rates, ensuring demand continues to outstrip the available rental properties in the market.
Until we see a significant increase in house building in England, especially in urban areas where demand is highest, we’re going to face increasing house prices and increasing rents. We are a small island (compared to many countries) and much of our undeveloped land is either protected (Greenbelt, Conservation Area, etc.) or it’s in areas where the majority of people don’t want to live. Government has its work cut-out trying to stimulate more house building. Leeds house prices are where London prices were 20 years ago. Unless we see a significant increase in house building. I predict that in 20 years’ time Leeds house prices will match today’s London price levels, with one-bedroom flats starting at £400,000, average semis at £1m+, etc.
– A Newsletter Editorial by Director Michael Moore FNAEA, MARLA.