Residential Market Update March 2023 – Spring Budget Overview
Recently news of a rate rise at a Monetary Policy Committee meeting has become almost a foregone conclusion, with rates increasing ten times since December 2021 and the last meeting in February. But views on the outcome of the March meeting were mixed. On one hand, the uncertainty surrounding the collapse of the Silicon Valley Bank and the takeover of Credit Suisse by UBS, alongside more encouraging news on the outlook for inflation from the OBR suggested the committee may stick. But unexpected double digit inflation figures, showing an annual uptick in CPI of 10.4% in February increased the odds of a rate rise.
Despite the announced 25 basis point rise, taking base rates to 4.25%, we still expect this signals a topping out (or near topping out) of rates. This remains in line with the base rate expectations in our November forecast, with JLL expecting house prices will fall by 6% nationally in 2023, with the market starting to see annual growth return in the latter part of 2024.
Updated Office for Budget Responsibility (OBR) forecasts following the Spring Budget show the UK economy is not now expected to enter a technical recession in 2023. However, forecasts suggest a small contraction of 0.2%. At present the UK inflation rate remains stubbornly high, however the OBR has forecast inflation will fall to 2.9% by year end. Despite economic uncertainty, the labour market continues to rally. Although job vacancies have fallen vacancies remain 300,000 above levels recorded pre-pandemic.
Despite expectations the UK will avoid recession, the outlook for growth is more muted. The OBR have forecast GDP growth of 1.8% in 2024, followed by 2.5% in 2025, 2.1% in 2026 and 1.9% in 2027.
The Spring Budget
The Budget was light on specific housing policies and initiatives to boost the supply of new housing in the UK. The costs of living crisis has exacerbated issues surrounding housing affordability and the need for greater innovation on supply side policy.
The news on the energy price cap remaining at £2,500 per annum will, however, be well received by households across the UK. The cap will remain in place until the end of June, by which time the government is hopeful that falling energy prices and more balmy weather will negate the need for further support.
There appear to have been a handful of small steps made to improve the UK’s renewable energy sources. The Department for Energy Security and Net Zero was one of four new departments created in February. In addition, the Chancellor has announced that the government is launching Great British Nuclear (GBN) to address constraints in the nuclear market.
The Housing Sales Market
The latest set of responses from the RICS survey saw the majority of agents reporting a continued fall in house prices and new buyer enquiries in February. A net balance of 29% professionals reported a fall in new buyer enquiries, an improvement on the 45% recorded in January. The story is similar across London with a net balance of 44% of professionals reporting a fall in house prices.
The Nationwide UK House Price Index reported house prices fell 1.1% in the year to February 2023, the first annual decline since June 2020. Higher interest rates and cost of living pressures have been slowly filtering through to the housing market over the past five months or so. Albeit recent reductions in mortgage rates and continued resilience in the labour markets have kept annual falls to a minimum so far. According to Nationwide, the average house price in the UK is £257,406, 19% higher than pre-pandemic levels (February 2023 vs. February 2020).
The Rental Market
The Homelet index suggests annual rental growth remains strong at 9.9% across the UK in February 2023, with the current average rent of £1,175 matching the November peak. The latest RICS survey continues to show an imbalance between supply and demand in the both the UK and London rental markets.
In London, the worsening demand supply story has continued to underpin rents, with annual growth of 12.4% in February 2023. The average rent across London reaching £1,975 per month.
Despite some clear challenges, the UK housing market remains in a strong position. Unemployment is still at near record lows, with recent data showing there are over 300,000 more job vacancies now compared to the beginning of the pandemic. JLL are forecasting single digit price falls nationally in 2023 as buyers and vendors adapt to higher mortgage rates and the squeeze in the cost of living. But prices falls will not be universal, we anticipate certain markets, such as central London and high demand city centre locations, will see more modest price falls or marginal price rises this year.
In the rental market the lack of quality rental stock is an ongoing issue. We also expect to see a higher number of prospective buyers, as well as those who would under normal circumstances have transacted under Help to Buy remain in the rental market for longer, adding further demand in an already constrained market.
|Residential Forecasts||2023||2024||2025||2026||2027||Total 2023-27||Average pa|
|UK House Price Change (% pa)||-6.0||1.0||4.0||5.0||5.0||8.9||1.7|
|UK Rental Value Change (% pa)||4.0||3.5||2.5||2.5||2.5||15.9||3.0|
Source: JLL Research
And in case you missed it…
JLL released our latest Big 6 Residential Development Report, comparing activity, pricing and rents across six UK cities outside of London. Veronica Spanos McGill, Senior Analyst at JLL, speaks to Egi on the shortfall of rental stock, with JLL highlighting increasing unaffordability in the housing market will drive demand for an additional 300,000 rental households over the next ten years. And on the story of the rental market, investment of £15bn has seen London's BTR market grow to 40,000 homes in 2022.
JLL Research | March 2023
JLL is a leading global professional services firm specialising in real estate and investment management, with $16.6bn annual revenue in 2020, operations in over 80 countries and a global workforce of over 90,000. With over 7,000 employees and 15 offices in the UK, we support our investor, developer and occupier clients at every stage of the property lifecycle across both commercial and residential asset classes. This includes land purchase, access to capital, planning, development advisory, leasing, building management and sales.
JLL’s Residential and Living team consists of over 300 professionals who provide a comprehensive end-to-end service across all residential property types, including social housing, private residential, build to rent, co-living, later living, healthcare and student housing.