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The effects of Covid-19 on the housing market

27 May 2020

The coronavirus pandemic will have long term implications for all aspects of the residential housing market. As restrictions are gradually lifted, the sector is starting to operate again, albeit under social distancing measures. But with the Chancellor confirming that it is “very likely” that the UK is in a significant recession, consumer confidence will be slow to return.    

Development activity 

Although the official guidance allowed construction sites to remain open during lockdown, the majority of large housebuilders shut down due to the difficulty of maintaining social distancing. They also closed sales offices and show homes.

This halt in construction is inevitably going to cause a fall in the delivery of housing and the number of new build sales this year. Data from industry analysts, Glenigan, showed that, as of 31st March, construction had been stopped on sites with capacity for 193,000 homes in England, the equivalent of 79% of the total supply in 2018/19.

But with sites now re-opening and local councils permitting extended working hours to allow the extra time to implement safe social distancing measures, work is beginning again. Under revised guidelines, new homes developers in England have also been able to start reopening show homes. 

Land market

Although the land market had strengthened after the general election result, the coronavirus outbreak has had an adverse impact on it. Some existing land deals went through but housebuilders stopped most new land buying activity.

Of course, any changes in the land market will be linked to what happens in the wider housing market. The number of residential transactions has already significantly reduced. In 2019, 1.175 million house purchases were recorded. This year, Knight Frank predicts the figure could be as little as 734,000, while Savills places its estimate in the range of 566,000 and 745,000. If the housing market is slow to recover due to economic uncertainty, this may cause land values to drop.

Planning and land supply 

In contrast, the planning system has not been so severely affected, with the flow of land still going through. This is partly because the Coronavirus Bill made temporary provision for councils to meet without councillors being physically present. As a result, some planning decisions have still been made and sites have received consent for residential development. 

The outbreak has had an impact, however, on the Local Plan process, with all examination hearings having been postponed. This could mean a significant number of areas may see delays in the adoption of their Local Plans.    

New build sales demand 

Housebuilders will certainly want to start making sales as soon as possible to maintain cash flow. To encourage this, more buyer incentives may be offered. There may also be more Build to Rent developments. One issue to watch out for is that some properties may no longer be eligible for the Help to Buy scheme, as a result of the delays. After April 2021, the scheme will be subject to regional value caps, and only available to first-time buyers.

What will happen to house prices? 

According to a report by Which?, house price growth will stagnate in the short term and price data may fluctuate for some time, given the low number of transactions going through. Savills offers two different predictions depending on the coronavirus outcome. The first forecasts a 5% drop in prices this year and a 5% rise in 2021, while its second forecasts a 10% fall this year and a 4% rise in 2021. It seems it’s going to be a case of closely watching how the situation develops and how the market responds. 

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