The UK Housing Minister has announced that small home builders will receive a big financial boost. In property expert Simon Morris’ opinion, this could have a significant effect on the UK’s residential property market.
Supply and demand
The UK residential property market has recovered from the economic crash of 2007, which devastated it dramatically. The Office for National Statistics’ latest house price index shows that the average UK house price rose 5.5% in the year to April 2015.
Yet figures show that supply hasn’t caught up with demand. A BBC article noted that a decade ago, the Barker Review of Housing Supply found that the UK needed to build roughly 250,000 homes every year to keep house prices under control. The country has continually failed to meet this goal, only coming close in 2006-2007, when 219,000 houses were built in the course of 12 months.
One of the reasons why the UK has failed to meet this target is that we don’t have enough small home builders. Property Wire recently reported that the number of small house builders, firms that develop between one and 100 units per year, has fallen from 12,000 to less than 3,000 in the last 25 years.
Housing Growth Partnership
The government has teamed up with Lloyd’s Banking Group to address this problem. Housing Minister Brandon Lewis recently announced that the government has earmarked £50 million, whilst Lloyd’s Banking Group have set aside another £50 million, to create the Housing Growth Partnership Fund. These investments will provide money to support small house builders, so that they have the capital they need to increase the UK’s housing stock.
Lewis was quoted by Property Wire saying: “The 2008 economic crash devastated our army of small builders, with delivery falling from 44,000 homes to just 18,000 and now seven years on companies are getting back on their feet but we’re determined to give them all the help they need.”
The Housing Minister also commented: “Access to finance is one of the biggest challenges they face so this £100 million commitment will help our smaller builders fund new projects, expand their businesses, create more jobs and build more homes.”
What this means for investors
This fund will give small home builders the support they need to construct more houses. Increased supply will undoubtedly have an effect on the UK’s residential property market, as more stock could push average UK house prices down.
This could be a double edged sword for investors. It could limit returns on their investment, but it may also provide them with a greater array of opportunities to increase their portfolio at a rate they can more easily afford. It would increase an investors chances, for example, of buying a house in London for less than £500,000; which they could then use to turn a profit in the UK’s most robust residential property sector.