UK Real Estate Market: Are we or are we not making progress?

Recent news headlines regarding the United Kingdom housing markets seem contradictory: some claim that UK housing expansion has been stopped due to lack of skilled labour, others present how foreign investors pour money into building more houses and some have taken the banner of a ‘housing bubble’ as their litany. So what is actually happening?

House building in the UK

Firstly, according to a recent article published by the Financial Times, the UK Government is committed to boosting house building across the UK: they are looking to build 200,000 homes a year as there is a consensus of a shortfall of housing available. Additionally, the Autumn Statement mentioned the Government’s aim to construct 400,000 affordable houses — will they deliver this?

Developing the construction sector

Skill and money are needed at the most basic level. According to the Royal Institution of Chartered Surveyors, there is a shortage of skilled labour in the construction sector — a shortage that is deemed to be ‘the worst for almost 20 years’ (1st January 2016 Financial Times.com). The main reason behind this shortage seems to be larger costs that have resulted partly from the business cycle of the construction sector and partly because fewer young people are attracted to becoming construction workers.

Nevertheless, there are incentives to oil the wheels of the construction sector. For example, apprenticeships are becoming a high-profile (and cheap) way to train young people as they can learn on the job — they gain qualifications, work experience, build a network of professionals and develop their careers. The Construction Industry Training Board (CITB) is optimistic about construction companies investing in the future by training the young generation.

On the commercial side, the investors are allocating capital in a wide range of real estate projects. For example, Birmingham is building offices at the fastest rate in 13 years. Moreover, Middle Eastern investors are buying London property as a source of secure income: Qatari, Emirati and Kuwaiti investors bought at least GBP 5.9bn of UK property in 2015, according to Real Capital Analytics.

Will this development continue in 2016?

It is impossible to see into the future. However, as the UK real estate market stands at the moment, it seems that the ‘bubble story’ is fuelled by investors’ optimism which in short-term can drive prices far too high above the actual value of the property purchased. In this case, specifically in the situation of home ownership markets, house prices have increased due to the lack of skilled labour mentioned above — a spark that can turn into a wild fire if left uncared for.

However, prices are likely to fall amid fears of Brexit. You see, the economy reflects human emotion: fear and greed more than anything. When enough investors are fearful and pull out their money by selling their assets, in this case property, prices will be driven down and the economy will revert towards reflecting a more accurate picture of what the UK property market is worth.

Therefore, to answer the question in the title, progress is made — it just depends from which angle you choose to see things.

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