UK house prices set to rise by 25% over the next five years

The Royal Institute of Chartered Surveyors (RICS) has issued a very interesting forecast for the UK property market for the next five years. While the headline news will relate to the forecast 25% increase in the average price of UK property the underlying reasons for this forecast should set alarm bells ringing. Many people will immediately discount a proposed “25% increase” over the next five years as unrealistic but what is really going on under the surface?

Lack of supply

It is no surprise to learn there is an ongoing lack of supply in the UK housing market although did you know that the figures have fallen to the lowest level since records began back in 1978? On average each surveyor in the UK holds stock of 52 homes and even this is down by 12% since the start of 2015. This in itself would not lead to the forecast 25% increase in UK property prices but most certainly has an impact upon market movements.

Growing demand

When you bear in mind that the UK economy is growing, the UK population is expanding and there are only so many houses available, it is not inconceivable to see a significant uplift in prices in a relatively short space of time. All at a time when property stock available is at a record low but the number of enquiries is now at its highest level in 12 months.

While many people had forecast an increase in demand after the general election it was automatically assumed there would also be an increase in available properties. The availability issue is one which is going to cause major problems in the short, medium and longer term.

Surely more homes is the answer to the problem?

As we have mentioned on numerous occasions, all political parties ahead of the general election promised a massive increase in the number of new builds across the UK. Indeed some forecasts touched upon 300,000 during the next Parliament although the reality is that the Conservative party will fall well short of this figure. Talk is cheap and this is the kind of talk we have seen on numerous occasions in years gone by only to fall by the wayside when the dust settles.

It is also a very tricky situation for housebuilding companies across the UK because they need to find a balance between new builds and demand to maintain price momentum going forward. If there was a sudden deluge of new properties on the market this would likely slow the property price growth we have seen in recent times.

Is there an easy solution?

When you bear in mind that property prices today, averaging around £196,000, are out of the reach of many people the affordability factor can only get worse. This could cause a self-fulfilling prophecy with fewer people able to acquire property then forced into the rental market which would lead to greater demand from buy to let investors.

Yes, those in the property market at the moment may have many reasons to be cheerful but what about those looking to climb aboard the property ladder in the future?