In one of its “disorderly Brexit” scenarios last year, the Bank of England warned UK house prices could fall by 30%.
While this sent many homeowners scuttling for their mortgage calculators, the news was welcomed by first time buyers who thought they had been priced out of the market forever.
Along with the rest of the warning, which outlined various Armageddon scenarios, this note about housing should be taken seriously – but if it comes to pass it might create some opportunities, too. Thirty percent is quite a drop – but less than the 42% Greece saw during its own economic problems at the start of the decade (and is still clawing its way back).
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A crucial difference between Greece and the UK – apart from the weather and several thousand olive groves – is that one had an oversupply of houses and the other does not.
According to a report in 2016 by auditing firm PWC, Greece had far too many houses as it went into its economic crisis. This oversupply continued even after the economy stumbled, intensifying the problem, and prices collapsed. In the UK, we have the opposite issue. There are far too few properties for those that need them.
Acknowledging the problem in 2017, Chancellor Philip Hammond announced plans to build 300,000 new homes a year until 2020 and the injection of £44bn to make it happen. In 2018, a further £500m was found to “unlock” 650 homes and the government partnering nine housing associations.
Planning regulations have been massaged, too, to enable existing buildings into residential buildings, rather than starting from scratch. Key to all this is who is going to build these new properties. The government has not run its own building depots for decades, so it needs third party help. Luckily for investors, there are plenty of UK companies that will be on the government’s list to start breaking ground.
With government backing and a cohort of buyers keenly eyeing a price slump, it could be the perfect conditions for these construction companies.Three of the UK’s largest housebuilders – Persimmon, Taylor Wimpey and Barratts Developments – are all listed on the London Stock Exchange (LSE) where they have recently slumped on general Brexit fears.
However, a note in December from Barclays bank said there was little further for these stocks to fall, so if property prices do drop by 30%, or even less, it could open the door to a new generation of homeowners – and those investing in the builders could do well, too.
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