Hottest demand for two bedrooms or fewer as prices hit new high
– Number of enquiries per property for two bedrooms or fewer is 24% higher than for larger properties of three bedrooms or more
– Challenge for government, planners and developers is how best to address this specific demand
– Number of new sellers down 10.6% on same period in 2014
– High June demand with Rightmove visits and enquiries to agents both up 22% on last year
The price of property coming to market has hit a new record high for the second consecutive month, albeit only a small 0.1% (+£191) increase on the month before. The average new seller asking price is now £294,542, though given the sharp drop in the number of properties put up for sale it is somewhat surprising that the increase is so modest. Likely influences are the onset of the seasonal summer slowdown, and buyers’ constraints in affording record prices. The latter underlines the need for more new build homes – affordable, of the right type and in the right locations – and emphasises the importance of the recent government announcement on speeding up residential planning permissions aimed at boosting supply. The shortage is most acute for smaller homes with two bedrooms or fewer, where Rightmove sees the biggest demand in excess of supply.
Miles Shipside, Rightmove director and housing market analyst comments:
“Another month, and another record high in the price of property coming to market. While the monthly increase is very modest, the same period a year ago saw a monthly fall of 0.6% which is more the norm given the onset of the summer holiday season. However, given the widely acknowledged supply crisis and a sharp drop in new seller numbers this month compared to this time last year, it is somewhat surprising that the rate of increase has slowed to such an extent. Recent government announcements including relaxing residential planning requirements on brownfield land are an important part of the mix in improving affordability if they follow through to cheaper land prices.”
The analysis at a national level on Rightmove in June shows that the greatest gap between buyer enquiries and the number of properties available is for homes with fewer bedrooms. While different supply/demand dynamics will be at play in different parts of the country, the overall picture is that properties with two or fewer bedrooms have the highest number of enquiries per property. This large mismatch is in the typical first-time buyer sector (two bedrooms or fewer), with 24% more enquiries per property of this type than for larger properties with three or more bedrooms. They benefit from demand from not only first-time buyers, but also downsizers and buy-to-let investors. The quandary for developers is how to deliver more homes into this sector when building larger homes may deliver greater profit margins and attract buyers with less stretched affordability.
“The greatest mismatch between demand and supply is at the lower end of the property ladder, as no doubt many buyers in this category would like to afford to buy a larger home, but have had to accept that it is out of their reach and downsize their aspirations to increase their chances of a successful purchase. The forthcoming extra tax burdens on buy-to-let investors may help to tip the balance in favour of first-time buyers, but the consequent drop in rental property supply could push up rents.
“More supply of affordable starter homes for the growing demand from both renters and buyers is required, which means more new build for both sectors to meet the country’s current and future housing needs. The challenge for government, planners and developers is how best to ensure the right properties are built in the right locations and at more affordable prices. This will however depend on addressing capacity constraints in the building industry, the price of land for housing, the consistency of funding for key players in the construction sector and the overall stability of the housing market and the wider economy.”
Demand remains high, with both visits to the Rightmove website and enquiries to estate agents up by 22% in June compared to the same period a year ago. In contrast the number of properties coming to market is running at a weekly run-rate 10.6% below the same period in 2014. The biggest drop-off in fresh supply is in the typical first-time buyer sector with two bedrooms or fewer, the sector where demand was already at its highest compared to available properties. The shortage of suitable property for sale highlights the need for an urgent and marked increase in the overall housing stock to help keep pace with the growth in household formation. With signs of buyers hitting their affordability ceilings, a substantial increase in suitable new build supply would help to alleviate upwards price pressure, although years of under investment will take years to rectify.
“Creating an environment where homes are more affordable requires long-term solutions. As prices increase, more and more buyers are reaching the upper limits of what they can afford or are allowed to borrow under newly restrictive mortgage lending criteria. Those assessing whether to sell and trade up are faced with a double whammy of curbs on their borrowing power and bigger price jumps to the next rung of the ladder. Improving affordability requires the creation of more homes of the right type and in the right place, resulting in increased churn and more pricing competition. The challenge is to identify what is in demand and in short supply and build more of it.”