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Housing market ‘out of step with incomes’

by: Heather Greig-Smith
  • 09/03/2017
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Housing market ‘out of step with incomes’
Rents will rise by more than 20% in the next five years, according to the latest RICS residential market survey.

RICS chief executive Sean Tompkins said the housing market is falling increasingly out of step with the majority of household incomes, and vulnerable tenants are being pushed out of the housing market.

“We see this as a matter of public interest. In the current climate, it can be hard enough for young professionals to make ends meet. But for those on benefits, the pressures may be insurmountable,” he said.

Together with charity Crisis, RICS has called on government to put in place additional support measures through the introduction of help to rent schemes. It said 52% of private landlords would house homeless people if government acted as rent deposit guarantor.

Tenant demand has continued to grow – with the exception of the London rental market – as 15% more respondents to the survey noted an increase, rather than a fall. Growth is more modest than a year ago, but the flow of new landlord instructions has deteriorated – with a net balance of -10%, the lowest for two years.

RICS predicts this negative trend will continue over the next couple of months as changes to mortgage interest tax relief start to take effect in April. As such, rent expectations remain positive, with a net balance of +24% in February. Over the next twelve months, survey respondents forecast rents to rise by a further 2.7%.

On the sales side, activity remains subdued, with transaction volumes broadly unchanged for the third month in a row. New buyer enquiries have now failed to see any meaningful growth since November 2016.

RICS said near-term expectations are positive but modest. Respondents indicated that modest growth was continuing across the housing market, with 24% saying that they had seen a rise rather than a fall in prices over the past three months. The North West was seen to have performed particularly well with a net balance of 64% reporting rising prices.

However, central London bucked the growth trend, with 62% of respondents saying that prices had fallen rather than risen during the same period. Surveyors have now reported a fall rather than a rise in central London prices for a full year.

The deterioration in the supply of new listings reported in January continued, with 14% more respondents reporting a decline in instructions relative to the prior period’s 12%. The pace at which new instructions are dwindling appears to be particularly acute in the North West of England and West Midlands.

With demand flat and the supply of new property continuing to slip, the national agreed sales indicator pointed to another steady month for transactions, posting a reading of +2% (following -2% previously). Sales activity appears to have picked up in London after nearly a year of negative to flat growth. Tight supply conditions across a majority of the regions, coupled with stable sales activity, has led to a further erosion of available stock for sale, with the average stock per surveyor just shy of a record low.

Despite this, surveyors show measured optimism on the outlook for transactions, with near term expectations broadly unchanged at +16% (from +15% in January). At the twelve month horizon, respondents across nearly all areas are more confident, with a net balance of 37% of contributors forecasting activity to rise.

Price expectations over the next three months were unchanged in February, with 13% more respondents expecting a rise rather than a fall. Both London and the North East of England report near term weakness in prices. However, at the national level, the outlook improved noticeably over the year to come with a net balance of 63% of surveyors forecasting growth (compared to January reading of +53%).

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