The London housing market continues to evolve, presenting both challenges and opportunities for buyers, sellers, landlords, and tenants alike. While recent trends indicate a degree of stabilization in prices and rental growth, affordability concerns persist, highlighting the need for continued monitoring and adaptive strategies in response to changing market conditions.
How is the London housing market doing currently?
Here are various indicators by analysts at the Greater London Authority that provide insights into the dynamics at play. While the growth rate in average asking rents for new tenancies has notably slowed down, affordability concerns persist. However, a noteworthy shift has occurred: for the first time since 2021, the number of available rooms in the flatsharing market has exceeded demand, indicating a potential adjustment in the rental dynamics
. Additionally, though the average price of homes sold in London experienced a sharp decline over the last quarter, there has been a marginal uptick in asking prices recently, suggesting a nuanced balancing act between supply and demand.
London House Prices
The housing market in London has experienced fluctuations in recent months. Despite a notable decline in the average price of homes sold, there has been a slight increase in asking prices. According to the ONS House Price Index, the average house price from completed sales in London increased marginally in December after several months of decline.
Concurrently, recent data from Rightmove indicates a modest increase in the average asking price of London homes. However, at the borough level, there are disparities, with some areas experiencing growth while others see declines in asking prices.
Purchasing Demand
Demand and supply dynamics in the sales market are gradually finding equilibrium after a period of subdued demand. While there has been a consistent trend of falling demand in London since September 2022, recent data suggests a potential stabilization in prices as demand begins to align more closely with supply. Factors such as changes in mortgage interest rates also play a role in shaping purchasing behavior, with rates experiencing fluctuations but remaining elevated compared to recent years.
Rent
Rental market dynamics in London have also undergone significant shifts. The rate of growth in average asking rents for new tenancies has slowed notably, indicating a potential alleviation in rental price pressures. However, despite this slowdown, affordability concerns persist as rental prices continue to outpace wage growth. Londoners are increasingly allocating a larger portion of their income towards rent, highlighting the ongoing challenge of affordability in the rental market.
Rental Market Demand and Supply
A notable development in the rental market is the first-time occurrence since late 2021, where the number of available rooms advertised surpasses demand. This imbalance suggests a potential shift in the dynamics of the rental market, with renters gaining more options and potentially exerting downward pressure on rents.
Additionally, data indicates variations in the availability of rental properties across different segments, with increases in certain categories and decreases in others. Despite fluctuations, tenant demand remains robust, while landlord instructions have seen a decline over the past quarter, indicating potential challenges in meeting rental demand.
Construction Material Prices
The cost dynamics of construction materials in the UK have undergone notable shifts in recent times. Following a period of rapid growth in 2021 and 2022, prices have gradually decreased since their peak in mid-2022. However, they have stabilized at levels not far from their peak, indicating resilience in the face of fluctuating market conditions.
According to the latest data from the BEIS, there has been a marginal increase in the price index of materials used in new housing between November and December 2023, with a modest uptick over the past year. While the pace of cost increases has slowed compared to previous years, the costs of housebuilding materials have not fallen significantly.
In a recent survey by the ONS, a significant proportion of construction firms reported minimal concerns affecting their business, marking the highest level of optimism since early 2022. However, among the challenges cited, falling demand emerged as the most significant issue, reflecting broader market dynamics impacting the construction sector.
Additionally, the CIPS UK Construction PMI highlighted concerns regarding higher prices paid for imported items, hinting at potential disruptions in the supply chain. This disruption, attributed to the Red Sea crisis, underscores the interconnectedness of global events and their impact on local industries.
Housing Supply
The supply of housing in London has faced challenges over the past year, mirroring trends observed across England. Monitoring data from Molior on the construction of homes in London reveals a concerning trend, with sharp declines in the number of starts, completions, and sales compared to the previous year. Stalled construction projects further compound these challenges, with numerous schemes experiencing delays due to factors such as sluggish sales and contractor issues.
However, there have been positive developments in planning applications and permissions towards the end of 2023, indicating potential future growth in housing supply. Despite the recent downturn, there is renewed activity in the planning stage, with an increase in both applications submitted and permissions granted, signaling optimism among developers and authorities.
New Housebuilding
Housebuilding activity continues to face headwinds, with housing completions running at a slower pace amidst a broader national slowdown. Data from DLUHC on Energy Performance Certificates (EPCs) recorded weekly in London provides insights into completion trends, showing a decrease in the number of completions in 2023 compared to the previous year.
Respondents to the February CIPS UK construction PMI highlighted low demand and a lack of ongoing projects as key constraints on housebuilding activity. Despite these challenges, there is a glimmer of hope in future business activity expectations, which reached the highest level of optimism since January 2022.
In its Monetary Policy Report, the Bank of England noted a continued fall in housing investment, primarily driven by a decline in new dwellings. However, investment in house improvements and associated spending with house purchases remain resilient, indicating a mixed outlook for the housing market in the coming months.
Will the London Housing Market Crash 2024?
The question of whether the London housing market is on the brink of a crash involves a careful consideration of various indicators, including demand trends, pricing dynamics, and market forces. While definitive predictions are challenging, analyzing current trends and potential catalysts can provide insight into the market's direction.
Market Outlook
While the London housing market has exhibited resilience in the face of various challenges, including the pandemic and economic uncertainties, predicting its future direction with certainty remains elusive. However, based on current trends and indicators, several possibilities can be considered:
1. Stable Growth: If economic conditions remain favorable, with steady employment, moderate inflation, and supportive government policies, the London housing market may continue to experience stable growth. This scenario would likely involve modest increases in prices and transaction volumes, with demand and supply dynamics remaining relatively balanced.
2. Correction: In the event of economic downturns, rising interest rates, or significant policy changes, the market could experience a correction. This scenario would involve a slowdown in price growth or even modest declines as demand weakens and supply outpaces demand.
3. Resilience: Despite potential headwinds, the London housing market has demonstrated resilience in the past. Continued demand from domestic and international buyers, coupled with ongoing housing shortages, could support prices and activity levels, albeit at a slower pace compared to previous years.
4. Uncertainty: Global events, such as geopolitical tensions or unforeseen economic shocks, introduce an element of uncertainty into the market outlook. While these events may lead to short-term volatility, the long-term fundamentals of the London housing market, including its status as a global financial hub and cultural capital, may mitigate adverse effects over time.
Factors Influencing the Market
1. Economic Conditions: The performance of the broader economy, including factors such as employment levels, wage growth, and inflation, will significantly impact the housing market. Economic stability and growth can stimulate demand for housing, while economic downturns may lead to decreased demand and downward pressure on prices.
2. Government Policies: Housing policies and regulations implemented by the government can have a profound effect on the market. Initiatives aimed at increasing affordability, stimulating construction, or regulating rental markets can shape supply and demand dynamics.
3. Interest Rates: Mortgage interest rates play a crucial role in housing affordability. Lower interest rates typically stimulate demand by making borrowing more accessible, while higher rates can dampen demand. The decisions of central banks, such as the Bank of England, regarding monetary policy will influence mortgage rates.
4. Supply and Demand Dynamics: The balance between housing supply and demand is fundamental to market stability. Changes in population growth, migration patterns, and household formation rates can impact demand, while factors such as construction activity and housing affordability affect supply.
5. Global Events: Global economic trends, geopolitical tensions, and environmental factors can have indirect effects on the housing market. Events such as trade disputes, natural disasters, or pandemics can influence investor sentiment, consumer confidence, and market stability.
Thus, the outlook for the London housing market in 2024 is subject to various factors and uncertainties. While growth prospects remain plausible under favorable conditions, the market's resilience and ability to adapt to changing circumstances will ultimately determine its trajectory.
Sources:
- https://data.london.gov.uk/housing/housing-market-report/