What is to blame for the world's unaffordable housing?
Making sense of the latest trends in property and economics from around the globe.
4 minutes to read
Banning buyers
Canadian Prime Minister Justin Trudeau has proposed a two-year ban on some overseas buyers purchasing homes.
Politically, it makes sense. People on the short end of the housing boom are upset and no votes will be lost, but will it have the desired effect? We'll take a closer look at the policy details in Monday's note, but we can draw some early conclusions.
Policymakers have been on a bit of a journey of discovery to understand why house prices have become so unaffordable relative to median incomes. Evidence of a shift in attitudes at the Bank of England emerged in 2019, when the Bank's researchers John Lewis and Fergus Cumming concluded that: the UK's low housebuilding volumes had played "almost no role" in national house price growth over the past twenty years.
In a separate paper published later that year, Victoria Monro and former MPC member David Miles found that, relative to incomes, the rise in house prices between 1985 and 2018 “can be more than accounted for by the decline in the real risk-free interest rate observed over the period”. In other words, rock bottom interest rates and cheap finance are overwhelmingly to blame for high house prices, rather than other factors, whether that's a lack of housebuilding or the prominence of certain groups of buyers.
Canada is not the UK, but they share a number of similar traits and change is afoot in both housing markets. The latest Reuters survey of economists suggests that the Bank of Canada will hike borrowing costs four to five times in 2022. It's reasonable to assume that tightening monetary policy will do a pretty good job of putting the brakes on house price growth without the need for investor restrictions.
UK house prices
UK house prices climbed 1.4% in March, the biggest increase for six months, according to the latest Halifax house price index. Here is Knight Frank Head of UK Residential Research Tom Bill:
“We are witnessing the current peak of UK house price growth…A shortage of property for sale has been instrumental in driving double-digit price growth, which is another situation that can’t continue indefinitely. A strong labour market and high levels of household wealth accumulated during the pandemic means prices will calm down without going into reverse."
The shortage of supply may begin to ease soon. Knight Frank received more new instructions outside London in March than any month since June 2021, though that reading is still marginally below the five- year average. Market valuation appraisals, a reliable leading indicator of supply, were up 24% versus the five-year average.
Prime London
Prices have continued their upwards trajectory in prime London sales markets, as demand in the capital rebounded after the pandemic. In prime central London, average prices grew by 2.1% in the year to March, the strongest annual rate of growth since May 2015.
In addition to the re-opening of the economy, relatively good value is driving demand In central London after six years of subdued activity, as we explore here in more detail.
The key influence on the future performance of the market will be the return of international buyers. However, given the current extent of lockdowns in some parts of the world, the return is likely to be more gradual than transformational. This suggests stronger price growth will only return next year when overseas demand starts to exert more of an impact. See the piece for more.
Wine
English sparkling wine is one of the wine world's big success stories. There are now more than 700 vineyards in England and Wales and a boom in wine sales during the pandemic has sparked intense competition in the land market as producers seek to meet growing demand.
For a new edition of Intelligence Talks, Anna Ward is joined by Knight Frank head of viticulture Ed Mansel Lewis and Richard Balfour-Lynn, formerly CEO of MWB Group Holdings, the owner of Malmaison and Hotel du Vin. Richard is co-founder of Balfour Winery on the Hush Heath Estate in Kent, which makes more than 400,000 bottles of still and sparkling wines each year.
The team cover the impact of Covid on the wine market, explore the clamour for good land, crop rotation, global warming's impact on the quality of UK wine, and wine tourism. Listen here, or wherever you get your podcasts.
In other news...
Claire Williams analyses the impact of supply chain woes, inflation and the Ukraine conflict on logistics operators.
Elsewhere - the rising costs of UK building materials (Noble Francis), UK consumer spending rises to 4% above pre-COVID-19 level (Reuters), UK hiring growth slows in March due to worker shortage (Reuters), planning objections to be blocked in Boris Johnson's green energy revolution (Telegraph), and finally, work half the week from home, French bank tells staff (Telegraph).