Housing market overview: is the glass half full or half empty?

The housing market has proved far more resilient than many had expected, both through 2023 and so far this year.

The number of homes on the market is rising, while the number of agents reporting to the Royal Institution of Chartered Surveyors that house prices are rising versus those seeing falls is back roughly to balance, as are new buyer enquiries.

In the private rental market, after three years of high growth – which was painful for many – we are seeing a calmer position, with tenant demand settling and landlord letting instructions similarly more in equilibrium.

Even so, the impact on social housing from the challenges we are seeing to affordability, sustained high mortgage costs and very high rents will mean that the sector’s homes remain in high demand.  

There are moral, financial and political pressures on the sector to build as many homes as possible, and the sector should not be deterred by what is happening in the housing market.

Our house view is that the risks are overstated. We will shortly refresh our house price and market rent forecasts for this year, and the period out to 2028.

Sticking my neck out, I expect that our house price forecasts will be revised modestly upward, from an average of 2.7 per cent per annum to say 3.5 per cent per annum, while rents should be slightly downward, from an average of 4.2 per cent to below four per cent, with the change felt mainly in 2024.

These market conditions are having a positive impact on asset values, particularly valuations on the basis of Market Value Subject to Tenancies (MV-T) given for loan security.

As a rough indication only, recent valuations we have issued to lenders show upticks of between four and seven per cent over the same valuations conducted a year ago.

On the Existing Use Value for Social Housing (EUV-SH), we know there are plenty of pressures on operating costs and therefore on net income or operating surpluses.

The expectations for additional capital investment in the short and longer term are mounting.

However, the lack of a rent cap in April 2024 and confirmation that the same Consumer Price Index plus one per cent policy will apply in April 2025, while only short-term comfort, are far better than nothing in terms of a policy announcement.

Sticking my neck out further, I expect this decision to survive a new government, come spring 2025.

These rent increases are enough to deliver uplifts in valuations on the basis of EUV-SH across the board.

Despite increases in costs, and bearing in mind we expect inflation to be lower in September 2024 than it was a year before, we are still looking at increases now of around six per cent over the equivalent valuations in April 2023.

So in my view, the economic and housing market tides are turning in our sector’s favour and our glass is definitely half full, with the level gradually rising rather than falling.

That does seem to be a fair measure of the mood in both London and Brighton at the recent conferences, and I hope we see that carried through, in both borrowing and investment decisions across the sector, in the months ahead.

Richard Petty, head of UK residential valuation, JLL