If we look back just a couple of years who would have predicted the falling rate of increase in London property prices, Chinese house prices continuing to power ahead and the Australian house price boom now touching a 50 year duration? Time and time again we see research notes released forecasting house price growth for the next decade. Historically it has been almost impossible to predict just a few years ahead never mind 10 years ahead. So, can you believe house price forecasts looking a decade ahead?
Population growth
Population growth plays a major role in house price growth and to a certain extent we can forecast population growth. A report by the Office for National Statistics forecasts that the UK population will hit 70,000,000 by the year 2029. This in itself would fuel a significant part of UK house price growth in the short to medium term. Roughly this equates to an increase in the UK population of around 3.6 million over the next decade – which would stretch an already difficult UK housing market.
So, as far as population growth goes we can tick this box because it is possible to use historic growth rates during different economic times to forecast population growth over a decade, with a degree of confidence.
Inflation
Inflation plays a major role in household income because the higher the cost of living the less money available to fund mortgages. We then have the ever-growing amount of personal debt across the UK which seems to grow year-on-year. It is not necessarily a problem at this moment in time because of relatively low base rates but as UK interest rates eventually return to somewhere near their historic levels it could become a major issue.
Those who follow the property market will know that inflation also impacts rent rates as many tenancy agreements have annual inflation increases written into them. Quite how this might impact house prices in general is debatable because on one side potential first-time buyers may be trapped in the rental net, while on the other side buy to let investors may see a better return if inflation proof rental agreements are abided by.
Supply and demand
While politicians right across the board continue to promise more and more houses in the UK, they have been promising this for the last 20 years. Since the Conservative government decided to sell off council houses in the 1980s there has been a distinct lack of properties for first-time buyers and social housing is now in short supply. This is unlikely to change in the foreseeable future so there will always be upward pressure on property prices when looking at the supply/demand ratio. It will vary but in general as the population grows, demand increases and supply shortages force more competition for properties on the market, pushing prices higher.
The economy
Perhaps the one sticking point for long-term house price growth forecasts is the economy. Only 12 months ago so-called “experts” were predicting Armageddon after UK voters decided to leave the European Union. There will certainly be challenges ahead for the UK economy but it has not fallen off a cliff as yet despite those in the media seemingly determined to talk us into a recession. So, the economy has a direct link with inflation, supply/demand for property and to perhaps a lesser extent the UK population – because a successful economy will attract immigrants. So, the reality is that house price forecasts a decade in advance might make interesting reading, and seemingly justify their conclusions, but nobody can say with any great certainty what will happen over the next 12 months let alone the next decade.