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Supply and demand disparity fuelling house price rise, confirms RICS

Words: Roger Milne
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Prices are up, demand is rising but the supply of new homes is in decline, according to research by the Royal Institution of Chartered Surveyors (RICS).

Its latest UK Residential Market survey (registration required), RICS found that the average number of sales reported by surveyors in April was 23, its highest since February 2008.
The figure represented an increase of nearly 25 per cent on March 2014 and some surveyors claimed they had ten prospective buyers for every property sold.
Meanwhile respondents in nine of 11 UK regions reported a decline in new property coming onto the market – meaning the total supply of new housing fell for the fourth consecutive month.
Against this backdrop of rising demand and falling supply, surveyors reported rising house prices. In every UK region the net balance of chartered surveyors reporting price rises was positive, ranging from just over 30 per cent in Wales to nearly 80 per cent in the South East. Prices also rose considerably in East Anglia (more than 70 per cent), but London – the traditional driver of prices – appeared to lag behind, with a net balance of just over 40 per cent of chartered surveyors reporting rises.
The survey confirms other studies that identify significant house price rises over the past 12 months. New figures published by Halifax suggest an 8.5 per cent year-on-year increase in house prices across the UK. Nationwide, using a different reporting system, found a 10.9 per cent increase over the same period.
Respondents expected house prices to continue to go up over the next three months, particularly in the North West where a net balance of 62 per cent more chartered surveyors predicted prices over the next three months will rise, rather than fall. In East Anglia that figure was 57 per cent and in London just 49 per cent, down from more than 60 per cent in March – suggesting that surveyors expect the London property market to start cooling slightly.
The RICS survey also found “modest growth” in tenant demand in the residential rental market, although the Institution noted that “greater mortgage availability and the ‘Help to Buy’ scheme have seen the appetite to rent lose momentum in some quarters.”
In the commercial property market, surveyors reported a similar pattern of demand outstripping supply as was seen in the residential market. Overall, some 52 per cent more surveyors reported higher demand from clients for space in the first quarter of 2014 – and commercial rents were rising as a result.
“It [the survey] showed that demand has risen in all regions outside London, providing that the recovery is no longer limited to the capital,” said RICS.
The disparity between supply and demand in the residential market and the apparent leap in prices well beyond rises in household incomes has led to concerns that the UK housing market is heading into another property bubble.
Economic forecaster the OECD has noted the rise in property prices beyond rents and household incomes and recommended “timely measures” to cool the market. Three former chancellors – Lord Lawson, Lord Lamont and Alistair Darling – have joined the OECD in calling for restrictions and a scaling back of the government’s Help to Buy scheme, which is seen to be fuelling demand.
RICS chief economist Simon Rubinsohn said of the survey: “House prices in general look set to remain firmly on the upward trend, although interestingly, there are some tentative signs that the price momentum in the London market may begin to slow in the second half of the year.
“The critical issue for the market remains the lack of second-hand supply, with our numbers suggesting that the picture is, if anything, getting worse. Clearly the absence of properties to buy will ultimately be a factor in influencing the ability of people to move homes.”