The UK is currently at the centre of a major housing crisis. However, according to industry forecasts, the British property market’s post-crash boom will come to a halt in 2017 when house prices flatline after five years of increase. Property firms have forecasted that economic uncertainty would lead to weaker growth in 2017. House prices are expected to rise by 1% across the UK in 2017, and fall by 1% in London due to consumer confidence being hit when the UK formally serve notice to quit the EU early next year. Whilst there is no national figure for how many people are homeless across England, according to Shelter the number is set at more than 250,000. In 2015 government statistics showed that 3,569 people slept rough on any one night across England. This figure is over double the number counted in 2010. Clearly something needs to be done about the rising homeless population but, although house prices are flatlining, will the number of homeless be decreased?
In order to determine how the homeless will be affected by house prices flatlining in 2017, an analysis of factors influencing supply and demand in the housing market after prices flatline needs to be carried out. Any change in the housing market will affect the rental market and thus, affect the homeless population.
Simultaneous to house prices flatlining, inflation is expected to hit 2.5% in 2017 in comparison to 0.9% in October 2016. This inflation will cause a decrease in Purchasing Power Parity and nibble away at funds available to feed gigantic mortgages, which will cause demand in the housing market to decrease. In response to rising inflation, the Bank of England may decide to increase interest rates to reduce aggregate demand and reduce the rate of economic growth. The Monetary Policy Committee (MPC) has already indicated that it will not lower the interest rate further, so they will – in all likelihood – either keep it constant or raise it. Some have hypothesised that given the rising inflation, the next move for interest rates will be up. Doing so will increase mortgage interest payments, increase the incentives for consumers to save as opposed to spend, and reduce consumer and investor confidence. Increasing the mortgage interest payments will be the biggest disincentive for people buying houses as a 0.5% increase in interest rates can increase the cost of a £100,000 mortgage by £60 per month. This will have a significant impact on personal discretionary income. Having said this, the interest rate will only have effects in the long run even if implemented next year. Given this lag, and given that PPP will decrease, people may enter the housing market as the price will not be rising relative to other goods and services.
In terms of housing supply, there has been a fall in buy-to-let purchases in the year that the government hiked stamp duty by 3% on such transactions, and the number of homes changing hands is expected to fall by 16% in 2017, to just over 1.1mn. The introduction of this tax is a contributing factor of why prices are flatlining to begin with but, given the reduction of housing supply on the rental market, prices may be driven up.
The economy’s response to house prices flatlining will affect a combination of supply and demand outcomes, making it difficult to predict what will happen in terms of activity in the housing, and thus the rental market. If prices flatline, consumers will either be inclined to buy houses hence reducing the demand in the rental market, or they will enter the housing market less, causing prices to surge in the rental market by putting strains on supply or, things will stay as is and rental prices will remain high. In May 2016, the average rent within London hit a shocking £1,543 so it is no surprise that the homeless population continues to increase. The only desirable outcome for the homeless population is if the housing market kicks off again, as this will make way for more affordable rental properties. However, if prices rise in the rental market, a growing number of citizens will find themselves homeless, whether this is in the form of living on the street, or residing with friends or family.
The causes of homelessness are complex. However, most charities and housing experts agree that reductions in the availability of affordable housing, rising rents, population growth and stringent planning systems are all contributing factors. In 2017, although buying houses will not be less affordable, rent prices could increase making it more difficult for the homeless population to find affordable accommodation. Although the government has plans to increase supply for affordable homes to buy and rent, this supply is not sufficient enough to meet demand. Ultimately, more needs to be invested in specifically expanding supply for housing and curbing demand. Solutions to these issues include relaxing planning laws, promoting a system that incentivises housing associations to invest in greater values of housing stocks, controlling immigration levels and boosting apprenticeships in construction. By tackling the causes that lead to lower levels of affordable housing, the number of homeless people should decrease.