It is about time to support the councils to build more homes (The Guardian). There is a noticeable need for housing in the UK and any effort should be welcomed. However, according to our experience from other countries we operate in, there are some points that need to be brought up in the Britain’s real estate discussion apart from producing more homes.
1. Demand or cost. An important question when it comes to the price growth in UK is whether it is demand or low running cost that made the price increase over the last seven years. The interest rate reduction from 4-5% in 2000-2010 to just above 0 has reduced the cost of mortgages significantly. As a result, the mortgage cost during the last 7 years has been at low levels which is the core in price increases.
2. Technological progress. There are many methods of construction around the globe today that are technologically advanced and cost efficient, but still not utilized in the UK due to not being classified as standard construction. Wood, steel framing and many other methods could be implemented to reduce the cost of construction and therefore the price of the house. Our question is why is this discussion so limited in the UK today if the housing challenges are so clear?
3. Market inefficiency. Unfortunately, the market policy in UK is not effective and there are a lot of limitations increasing the transaction cost and time of transaction, including time for approval. The interest in the market from international capital is limited due to lower efficiency, particularly outside of London. The market has, however, seen some improvement within the permitted development during the last years and these changes are very favorable for increase in the construction.
We agree with the view that UK market needs to increase construction activities and we would welcome any change to simplify processes and offer more options. At the same time, the cost of living is not above the historical level, while the cost of purchase has increased due to higher prices. Therefore, as the best way to stabilize the market we see more activities around the affordable living and not the activities towards price reduction.
KL Property Partners
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