2019: it’s the year of living dangerously, not least for forecasters. I aimed to do a ‘year ahead’ piece in January, but the politicians kept moving the goalposts. Forget trying to predict how the year will unfold; writing even a week ahead of publication threatens serious pratfalls.
The PM may have at least temporarily wrenched a bit more breathing time on Tuesday night’s vote, but only after losing her previous ‘meaningful vote’ by a meaningfully historic margin, scraping through a confidence vote and having contended with parliamentary chicanery that would have shamed the court of the Borgias. That said, here goes.
Firstly, I don’t think the housing market will fare much differently than if the ‘B’ word had never reared its head. London house prices were falling anyway and were too high – George Osborne’s 2015 tax changes triggered the meltdown.
For would-be house buyers, I’m convinced Brexit stops being a factor north of about Highbury Corner, apart from odd pockets of the rest of the country within a mile or so radius of a Waitrose.
Even in London’s Remainer heartlands, deal volumes show signs of stabilising, albeit at a low base, a trend supported by the latest RICS survey. (It’s worth scanning the agent comments at the back, which this month seem more circumspect than in the past couple or so years.)
Buyers are hardly racing back into the market, but sellers are finally conceding that their homes are now worth 20% to 30% less than they feverishly imagined when they first marketed them countless months ago. My forecast: prices not falling much more and a slight, stuttering, revival in deal levels, as sellers meander back and forth from reality.
There is one exception: London’s high-end ‘zombie’ sites. The latest Molior report, for Q4, shows 7,012 units completed, the second highest number in the decade since the financial crisis and up 20% year on year, in a market with dwindling buyers – only 4,873 sales in the period. Sales have been falling faster than new construction starts and a record 65,000 units are being built in the capital, 48% of them unsold – the highest since 2012. Many sites are no longer viable and construction is stalling.
My prediction: developers with deeper pockets will hope to ride out the storm, others will blink first. Prices will spiral downwards offering housing associations some ‘des res’ opportunities. Rents will come back under pressure in the capital as another wave of distressed blocks comes on to the market.
Back in the real, mainstream UK property world, prices are rising modestly in the rest of the country, but with falling volumes, partly due to resistance to pricing. While Brexit appears not to be as obsessed over as it is at London supper parties, ‘Project Fear’ has led many would-be buyers to sit on their hands.
My guess: there could be the start of downwards pricing pressure, resisted by mortgage lenders more than buyers. Banks and building societies are getting twitchy about capital ratios and risk (perhaps due to Bank of England Governor Mark Carney’s gloomy pronouncements) and, I hear, are leaning on valuers to come in under asking prices.
Housebuilders also face pressure from rising material and labour costs, which is putting margin pressure on existing sites and should pull back land values. However, fears of skill shortages look wildly exaggerated and should be addressed by the EU Settlement Scheme.
A greater immediate supply-side danger for the property industry is the risk of supplier failures due to cashflow problems. Consultant Turner & Townsend has warned clients that this will be exacerbated by a squeeze on margins.
An even greater risk than full-on Brexit to the real estate sector may be a snap election and a Corbyn government. Shadow chancellor John McDonnell seems to be an ‘all property is theft’-style socialist and in November proposed the collective ownership of land. I’m loath to get overtly party-political, but with this and his thinly-veiled disdain for commerce, I’d suggest a tweak to the old anti-Blair campaign posters: Old Labour, new danger?
Alastair Stewart is an equities analyst and consultant