James' Blog about Property

Discussion, advice and philosophical points about all things property whether UK or International markets

The future of the UK Property Market?

Posted by jamesdearsley on August 5, 2009

I have been debating for some time now about where the housing market is going to go to in the future however the thoughts have really picked up speed since the October 2007 and the start of the so called “property recession”

My main thought is the issue of Home Ownership (HO). Can our current rate of home ownership be sustained with rising house prices – or rather this was the case when I first started thinking about it! Now I question whether the amount of borrowing will have play a determining role rather than house prices. You could argue that it is both as first time buyers are still struggling with the multiples of income that they still need to afford house prices despite the falls – especially in the South of the country which is already seeing a slight recovery.

This article is going to cover my thoughts backed up by historical evidence and offers insights in to where I believe the future lies. The main issue here is that I believe we are on the cusp of a generational shift in the housing market and it is going to be interesting to watch it. The main issue here is that an Estate Agency would need to consider these thoughts to review its business model and change to reflect the market place. It will be really interesting to see what happens.

Historically the UK has always had a good level of homeownership (HO). It accelerated quickly post the 2nd World War as shown in the table below:

Year Percentage of Home Ownership
1953 32%
1961 43%
1971 51%
1981 75%

Source – The Times, article “Home ownership slips into reverse for the first time in half a century” – March 26, 2007

The percentage in 1981 is still the highest in percentage terms to this day, with todays figures around the 69% mark, but in absolute numbers this represented only 9.9 million households and yet today, due to natural population growth, it is much higher.

This is a similar story across the pond in the US though they have been a lot more stable and historically a little bit lower than the UK. With the combined problems of the World War and the Great Depression slightly earlier, it meant their HO rates were historically low at 40% in 1940. However the surge following the war and a “booming economy, favourable tax laws, a rejuvenated home building industry, and easier financing” meant that HO jumped to over 60% in just over two decades. (Data: US Census Bureau)

If you look at the US today it has been quite stable since 1960’s but the UK and US tell a different story to the rest of the world. Interestingly, the highest HO is currently Italy with 76% followed closely by Israel with 73%. Looking at other, more established economies though, this number drops significantly; Germany is only 42% for example and France only 55% (Data: Wikipedia).

Interestingly I make a point here about “more established economies” but this is not necessarily an economic argument as there are many things said to influence HO which may not be immediately apparent. These include:

  • Race
    • Most notably “white” races have a higher HO (75.8% in the US) compared to African American (48.2% in the US)
  • Type of household
    • Married couples lead the way here (84.2% in the US) compared to a single male household (50.3% in the US)
  • Income
    • Seemingly obvious to be honest.


My thoughts about the UK property market are that we will soon be moving to a more European style of HO and there will be a higher proportion of rental properties available.

There are two reasons why, in my opinion, a lower HO percentage will prevail:

  • Price of property
  • Though prices have dropped they are still a lot higher than average wages. In percentage terms, despite recent drops, average prices are something like 56% higher than in 2001 and yet wages have only increased 21% – though don’t quote me on these figures as I cannot remember where I read the fact but it won’t be a long way off.
  • Mortgage availability
    • This is new because this limiting factor has only been apparent since the crash. It is the probably the most debilitating however. Despite flexibility starting to return it is still the people who have large deposits which are going to get the best deals. Hence my reasoning on larger landlords with a higher ability to gear other properties correctly.

These moves in HO don’t happen overnight as can be seen from the historical figures and I believe this is a generational issue as well – this generation of the first time buyers are more likely now, than ever before, to consider renting. Therefore, in my opinion, the rental is going to continue to have a nice bull market for some time to come.

Looking into the future though, how is this going to affect the market? In the next five years I do believe the amateur landlords who have been forced into letting will leave that market and professional landlords will take over. Here is where I worry slightly.

There will be more rental flats available which could therefore drive down rental prices – the simple supply and demand equation. Yields will be driven down and amateur landlords will not be able to stay in the market place. Larger landlords will be able to absorb this though as they will be dealing in a volume market rather than concentrating on specific yield calculations. This will further put pressure on hopeful landlords and again increase the positive feedback loop for professional landlords.

Looking forward a little more and you can see why the likes of Germany have not seen a huge increase in property prices – I think this can be linked directly to their active lettings market. Others have questioned whether this is simply down to the legal situation with regard tenant friendly conditions as well. This is correct but I believe a short term challenge rather than a generational shift.

This basic numerical list below shows this sales cycle and could help explain the next sales boom however (maybe suggesting Germany is about to explode!) but we are talking about a generational gap here and not a five year cycle.

  1. More lettings properties available because of declining sales market
  2. Rental prices decrease
  3. More people attracted to renting over buying
  4. Property prices stagnate for a long period as less pressure to buy
  5. Wages increase at faster rate than property prices
  6. Property begins to look cheap again

I think you can see that if I continue this thought process it goes in a complete circle but it will be interesting to see if this happens at all.

Whatever happens however Estate Agents will be alright though as ultimately all they need is activity. The bigger risk to EAs is 3rd party intervention like Google’s new mapping technology – ultimately this puts property portals at risk rather than EAs but I am sure this is only the start.

Whichever the way the market goes we are heading for an exciting time in our market place and one certainly that I look forward to seeing where it is heading.

Best wishes everyone.



5 Responses to “The future of the UK Property Market?”

  1. Whilst I agree with much of what you have said here, I would possibly have a different view re the tenant demand:
    points you raised:-
    # More lettings properties available because of declining sales market
    # Rental prices decrease

    Personally I feel if people decide they cant afford to buy property and then go in to rental that won’t necessarily create a situation where rents decrease. They have to live somewhere-rented or bought, if they are not in one they are in the other potentially. However, if wages go down significantly then rents would probably go down too-because then we are back to affordability again.

    More properties available- may mean experienced landlords take them on who know how to fill them in any market-which won’t necessarily mean lowering rents-rather providing more for the rent perhaps- or allowing couples in multi lets?

    Also, what we are finding is that financial difficulties have a way of making couples split up-thus producing the need for more rental requirements as one moves into rented.We are already seeing this trend in our properties.

    Roberta Ward

    • Hi Roberta,

      Firstly, thank you for the comment. They are interesting points that you have raised and I definitely agree with the last one about people splitting up. I certainly remember this happening before when I was directly involved in letting.

      My argument for the “more properties available, rent prices decrease” was a simple supply and demand issue and you have alluded to this later on i.e. landlords have to make their properties more attractive by dropping prices to pull in tenants.

      Best wishes Roberta.


  2. paul fenton said

    interesting article I believe it is a very good subject , I do agree with the majority. However I believe there is a growing demand for property whether it ends up being rental or ownership given the population increase in UK of 400,000 recently quoted that’s a lot of additional property required we are not building at the even 150,000 per year I think 2009 will be less than 100,000 units completed. It’s also a case of where people live in the UK and are moving to , I can see that the argument for reducing rental yeilds in the lower demand areas being a valid point . But as in Germany there are high and lower demand areas in Munich rents are much higher than Berlin .
    Inflation will also help todays landlords erode some of thier debt as this government with low interest rates, currency devaluation and quantative easing will ensure that some inflation remains in the system.
    I believe property yeilds are already too low to justify investment even with the recent price falls as net yeilds after agent costs etc are generally below the cost of finance, it requires very heavily discounted properties to acheive cash flow positive yeilds if borrowing at 5% . Clearly there are all those people in the market who want to sell something that are promoting property as a great deal but I fall in to the camp who want a +ve cashflow after all expenses assuming a cost of finance of 6.5% ( which is approximately the current cost when adding fees)


  3. This is an interesting and well presented big picture.

    I suspect that demographic changes e.g. more single people households and changes in working and studying practices will generate other pressures. There will be a need for smaller properties and for properties available for letting for shorter periods e.g. a month or two. Hence there will be a growth in short term letting for people who are working or studying for short periods away from their home base.


    • Hi Janet,

      Thank you for the comment, much appreciate. I agree with your point as I have seen the Short Lettings world errupt in the past few years. I remember helping with a lot of short lets in my past career at Foxtons. It was very interesting, very fast pased and ultimately getting busier each and every month.

      Hope all is well Janet. James

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