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2021 will be a year of three parts for the residential sector.
The year 2020 was remarkable for the UK housing market. Despite the deepest recession in living memory, house prices rose by 6.5% in the year to the end of November. With the behavioural response to Covid-19 outweighing the expected economic impact on the market, transaction levels surged in the wake of the first lockdown.
Had someone suggested in May that we would see £20 billion of monthly mortgage approvals by October, they would have been dismissed as mad. Yet there was a record amount of mortgage debt comapproved in that month, as those with the financial security to move reassessed their housing needs given both their immediate experience of lockdown and an expectation that it would have a lasting impact on their lifestyle.
What, then, does that experience mean for 2021? Assuming the stamp duty holiday has a limited shelf life and the behavioural impact of lockdown dissipates as a vaccination programme is rolled out, it increasingly looks
as though it will be a year of three parts.
In the early part of the year, we expect transactions and prices to continue to be supported by a combination of exuberant attempts to beat the end of the stamp duty holiday, the final days of the current incarnation of Help to Buy and the continued desire for people to find a home that better meets their immediate requirements.
The experience of 2016 tells us that nothing distorts the housing market like a pre-announced change in taxation. And with the stamp duty holiday due to come to an end around the time unemployment is expected to peak, we can be pretty certain of a pronounced lull in activity during the middle months of the year.
With that comes the very real prospect that some of the price gains made during the preceding ‘mini housing market boom’ will unwind. However, the extent of any house price falls are likely to be tempered by the boost to consumer confidence of an effective vaccination programme.
This period is also likely to mark the beginning of the end of the great work from home experiment as people return to their office environment on a more frequent basis. That is likely to result in less urgency to upsize or relocate to the heart of the commuter zone or its fringes.
Only in the latter part of the year do we expect the economic fundamentals to come back to the fore. Falling unemployment and low interest rates are expected to restore housing market demand. However, the financial clout of potential buyers is likely to be tempered by the prospect of tax rises as attention turns to balancing the government’s books.
All of this begs the question: what lasting impact will Covid-19 have on the housing market? There is little doubt it has caused households to reassess their work-life balance, their housing needs and where they want to put down their roots. The permanence of these changes is very closely linked to the future role of the office, the extent to which the dream of part-time home working becomes a reality and the practical experience of commuting, even if on a part-time basis.
Mapping the road ahead for residential development and residential investment.
Hear more about Lucian’s views in our latest podcast here.
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