Why is There a Strong UK Property Market in the Midst of a Global Downturn?

Despite a strong UK property market, there has been endless talk within the UK about the inevitability of a property price crash.

So much talk indeed that the fact that this is actually happening globally has been rather overlooked.

This begs the question; ‘why hasn’t the UK property market tanked?’, or rather, ‘why has the UK property market remained so strong in the face of global trends?’.

Perceived wisdom still expects the UK market to slide, but so far there has been little sign of that happening.

So, as an experienced buy-to-let property professional I’m going to take a look at the global property market and compare it with the situation in the UK and try to work out why we still have a strong UK property market.

A global downturn

While the UK market seemed to go from strength to strength, property values worldwide have been slumping, quite noticeably. So, just how dramatically have global property markets been contracting?

According to Goldman Sachs, the figures across the G10 group of countries are quite concerning.

For example:

• New Zealand (-19%)
• Canada (-19%)
• Sweden (-17%)
• Australia (-15%)

The picture isn’t uniform and some markets haven’t been quite so badly affected:

• Italy (-2%)
• France (-4%)
• Switzerland (-6%)
• USA (-5%)

The extent of this decline on property prices is graphically demonstrated in the World Economic Forum’s ‘Chart of the week’, drawing on data from the Organisation for Economic Co-operation and Development (OECD).

Higher interest rates in response to rising inflation are commonly cited as the driving force behind the fall in values, but that is also true in the UK where the property market is doing the opposite.

Over the past year, while many developed property markets have seen significant declines in property values, according to the Office for National Statistics, property prices in the UK rose by 4.1% in the last year.

Before turning to why this might be the case, we’ll have a look at what property prices have been doing in the UK recently.

Property prices in the UK

According to Rightmove’s House price index, property prices in the UK in May 2023 have risen by 1.8% compared to April 2023. They attribute this rise to the increasing stability of fixed-rate mortgages and a generally more positive economic outlook.

Tim Bannister, their Director of Property Science makes a key comment, “…and we can see from activity levels and the still relatively limited choice of property for sale that this confidence is justified in some segments of the market”.

If the UK market is being subjected to the same economic trials as other developed nations, but property prices are reacting in a completely different manner, there has to be an underlying cause which is not related purely to the cost of borrowing.

Housing availability

One of the differences between the UK market and other property markets which are experiencing significant downturns in value is the availability of housing stock.

It’s no secret that the UK housing market is simply not delivering sufficient new stock, for a variety of reasons. This squeezes the room for manoeuvre for buyers; a rare commodity tends to be an expensive commodity.

According to the Centre for Cities (CFC), the UK currently has a shortfall of some 4.3 million houses compared to our European neighbours.

This assertion is supported by the OECD study of Housing stock and construction, which shows the UK well behind the leading countries as far as building new stock is concerned.

Interestingly the CFC posits that this problem dates back to the immediate post-war period and the passing of the Town and Country Planning Act 1947, rather than the more commonly cited Right to Buy policy from the 1980s.

Without delving too deeply, they argue that house building almost halved in the aftermath of the Act, and point to New Zealand’s recent success in increasing home building as a viable response.

New Zealand’s approach was to overhaul their planning and zoning requirements to permit greatly increased home building in cities, and especially in areas very close to transit centres such as railway stations.

Initially trialled in Auckland starting in 2016, by 2021 the new policy had increased home availability by 5% compared to likely construction under the previous rules.

With the changes showing such a significant effect on the number of homes being built, after the trial period, the changes were rolled out to the five largest cities in the country.

While the current UK government has made some efforts to change planning laws in the UK, always assuming that this would dramatically increase supply, these have been beset with problems and objections.

It seems that the UK, while conscious that it has far too few homes for its population, would rather that the solution to that problem was built somewhere else. If the Centre for Cities is right, radical change will be required to address this issue.

Advice from the property pros

The current and future value of properties is always a concern for landlords and property investors. Capital appreciation is a key consideration for many who invest in buy-to-let properties.

At present the UK market is delivering well for investors and landlords, with house prices bucking global trends and while none of us would ever rule out the possibility of a decline, it’s looking less likely at present.

Accordingly, the buy-to-let market still represents a great investment opportunity, regardless of global trends or future changes to legislation which might finally unlock the restrictions on building within the country.

In summary…

Housing markets can be unpredictable beasts and no-one has the ability to accurately predict how they might react to different stimuli. They are, however, just one of the considerations for investors.

With decades of experience in the UK housing market, and a special focus on buy-to-let investment, we are well placed to offer advice on all aspects of the market to new and existing investors.

Whether you want to reassure yourself about the affordability of investing in buy-to-let property or want to discuss the possible effects of more esoteric matters such as the long-term trajectory of the housing market, we’re here to help.

If you’re looking to increase an existing portfolio, or take your first steps into the world of property investment, we can guide you to getting the best from the strong UK property market. Just pick up the phone or drop us a line, we’re happy to help.

Written by Chris Wood, MD & Founder of Portolio

Get in touch on 07812 164 842 or email [email protected]