Is a Housing Over Supply Looming

David Lawrenson looks at UK demographics and asks, “Could a housing oversupply be looming, just over the horizon?”

Housing Oversupply

Yes, I really asked that question, which may seem odd in these times when everyone is talking about how expensive property is and how much housing shortage exists. But an excellent article in Property Investor News got me thinking about this more.

There is some evidence that a housing over supply may indeed be possible in the next few years.

Let’s have a look at some history…..

The UK population is now just over 65 million, having grown by over 500,000 in just one year – 2014. The number of households in the UK is now 27.1 million, an increase of a shade over 7 per cent since 2006, about the same as the increase in the population level in that same period.

The most recent projections say the UK population will reach 77 million by 2050, though this does not account for whatever the impact of Brexit might be.

But you have to dig down into the actual demographics to assess the real impact on housing demand / supply on specific segments of population in the future.

Writing in “Property Investor News”, a magazine I highly recommend for my clients and any serious landlord/investor, Peter Hemple points out that the number of people turning 18 over the next 10 years will be “down by 20 to 100,000 each year for the next 5 to 10 years, until the number soars for the following decade”. Food for thought for those providing student accommodation.

Looking at the older population, Hemple points out that the percentage of people over 65 has increased from 14% in 1975 to almost 18% now. By 2045, this group will account for a quarter of the population. So, lots of demand for housing suitable for this group!

Clearly, immigration is a big factor in population changes, and has been for 20 years now. Hemple crunches the stats and concludes,

“When you look at house building over the past 10 years and compare it to the natural population change without considering net migration, you can see that without immigration there would be a housing crisis…..but it would be a problem of massive oversupply.”

Housing Supply in the 1980 and 1990s

We have been here before.

Take a look at the 1980s and early 1990s.

It may be hard for young folks to appreciate this today, (or old folks with selective memories to remember), but from 1989 to 1995 house prices fell in the UK about 30% in real terms, including in London. Back then, there was huge problem with negative equity right across the UK.

One factor behind this was a big jump in interest rates from 1989 to 1990, another was the abolition of MIRAS. But yet another factor was a falling population coming at the same time as an overhang of newly built houses coming on stream. In 1992 and 1993, more people left the UK than came in. And from 1994 to 1997, net migration was less than 50,000 a year, tiny compared to recent years.

Then, with the election of Tony Blair, migration started to increase, then soar. Many people think this migration was mostly from the EU, but the facts show that EU migration has actually always been less than non-EU migration until 2016. So, leaving the EU won’t necessarily have as much impact on the population as people think. (This fact will be of news to many Brexit fans!).

Over the last 20 years, Hemple goes on to say that the 1.52 million people who have come to the UK from the EU countries is not far off the 1.32 million who have moved out of the UK to the other countries of the EU. Generally, the larger chunk coming in consist of young workers, (especially from Central and Eastern Europe), whilst it is British retirees who head out to emigrate to warmer climes in Malta, Portugal, France and Spain. Hemple concludes a sort of “rotating demographic cycle” is at play.

Build to Rent

There is a lot of new build being planned right now, including lots of Build to Rent stock. The Home Builders Federation says they will be delivering the targeted number of homes for the next 2 years, so it seems their supply chain problems of men and building materials are now finally resolving!

If this comes on stream at the same time as a fall in numbers of migrants coming to the UK, possibly as a result of any future Brexit deal, or possibly because the UK is already now 12 to 20% less attractive as a place to work for foreign workers (due to the falling pound against their “home” European currencies compared to 12 to 24 months ago), then we could very soon be in a situation of over supply of housing.

I’d recommend you sign up and read the full piece by Peter Hemple at Property Investor News.

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