RICS warns of ever-higher housing costs as supply shrinks and demand rises

With demand rising and supply contracting, house prices are set for further rises over the next 12 months, RICS has warned, prompting a call for a “coherent and coordinated” strategy to build more homes across all tenures.

In its latest UK Residential Market Survey, the organisation revealed that 44% more chartered surveyors saw prices rise in July, but supply to the market continued to decline with 22% more surveyors reporting a drop in new instructions.

Furthermore, the shortage of housing inventory worsened during July, with the average number of properties for sale per surveyor slipping to a “record” low. As a consequence, RICS said that all areas of the UK are projected to see “sizeable house price gains” over the next twelve months, with confidence highest for East Anglia and Northern Ireland.

Near term expectations for prices also continue to reflect the imbalance between demand and supply, the organisation added, with 41% of members expecting prices to continue to rise over the next three months.

However, rising prices have not dampened interest as new buyer enquiries rose for the fourth month in succession, with 25% of respondents reporting a rise in demand.

Despite this steady and sustained improvement in demand, newly agreed sales were more or less unchanged at the national level in July. There is a “little more” optimism regarding the prospects for activity in the future with 37% more respondents expecting sales to gain momentum over the next three months and 40% more taking the same view on a one year perspective.

“This Government has put home ownership at the very heart of its agenda, with Starter Homes and extending Right-to-Buy the strongest evidence of that ambition. However, this continues to be demand driven and fails to address the real issue of supply,” said Jeremy Blackburn, head of policy at RICS.

“A coherent and coordinated house building strategy is required across all tenures. This should include measures that will kick-start the supply-side, such as mapping brownfield, addressing planning restrictions and creating a housing observatory to assess the underlying economic and social drivers of housing and provide the impetus for solutions.

“The changes brought in through Fixing the Foundations, the Chancellor’s productivity plan, were welcome and refreshingly on the supply side – such as zonal planning, dispute resolution for S106 and local plan enforcement. But these alone are not a strategy for increasing housing supply across all tenures.”

In the private rented market, RICS added that tenant demand had continued to rise while landlord instructions – despite a slight increase – had “failed to keep pace once more” with this rising demand. As a result, 34% of respondents to the survey expected rents to increase right across the UK, with members in the West Midlands (4%) and the South East (3.3%) projecting the sharpest growth over the next year.

“A renewed acceleration in house price inflation allied to a fairly flat trend in sales activity highlights the very real challenges being presented by the housing market,” said Simon Rubinsohn, RICS chief economist.

“More worrying still is the suspicion that the imbalance between supply and demand will lead to even strong price gains over the next twelve months. This is also visible in the firmer pattern in the buyer enquiries series which has now risen for four months in succession reflecting in part, a further modest easing in credit conditions.

“This trend could be brought to a halt when base rates do eventually begin to rise but the dovish tone to the latest Bank of England Inflation Report suggests the first move will come a little later than previously thought likely and that subsequent increases will be very gradual indeed.”

Responding to the survey, Andy Sommerville, director of conveyancing search business Search Acumen, said: “The chasm between housing supply and demand shows no sign of closing, but conveyancers will be reassured by the resounding forecast that property sales are set to gain momentum. Sentiment among surveyors clearly points to a further increase in activity, and this comes as no surprise when house price rises are lifting many homeowners out of situations where they have been trapped by negative or low equity.

“It’s certainly good news – for now – that limited supply hasn’t halted four months of rising buyer enquiries. But the problem comes when potential movers find their next step up the ladder is out of reach because prices in a higher bracket have also risen with the tide.

“This limits the number of suitable first- and second-time buyer homes coming onto the market, and the only long-term prospect for growth is for planning reform to overcome supply barriers. Until this happens, the limited stock will put a ceiling on the long-term property recovery.

“For the time being, conveyancers who want to grow their residential business will be pitted against each other to win a bigger share of the market.”

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