Housing market challenges continue in lead-up to general election

RICS UK Residential Survey May 2024

• Demand for rental property continues to rise alongside lack of supply
• Near-term sales expectations still point to recovery but policy support could accelerate recovery
  
• Longer term thinking is needed to fix the current issues in the market

The latest residential market survey from the Royal Institution of Chartered Surveyors (RICS) provides food for thought for the UK's political parties as they gear up their campaigning ahead of the General Election on July 4. Critically, the research reveals that confidence in the UK’s housing market is beginning to ebb despite a markedly improving outlook over the last few months. Meanwhile, there remains a huge mismatch in the private rented sector (PRS), with demand continuing to significantly outstrip supply, leaving renters tackling ever-rising living costs and plummeting affordability levels.

The UK's lettings market is facing growing challenges, and it will be interesting to see how the political parties address this. Tenant demand rose notably to +35% (net balance), up from +10% in May. Meanwhile, new landlord instructions, which are landlords in the market offering property for rent, were flat. The growing gap between supply and demand for lettings indicates that rental prices will continue to rise for the foreseeable future, albeit at a slower pace than previously.

As confidence regarding an imminent cut in interest rates has ebbed, and the cost of living crisis continues to bites, there has been a small drop in new buyer demand in the sales market, with a -8% (net balance) result recorded nationally compared to the flat picture reported in April. This latest figure is the lowest reading for new buyers since November 2023. Buyer demand was weakest in the South East and South West of England.

Respondents to the survey also reported a fall in the number of sales agreed during May, although, it is expected that sales volumes will rise modestly over the coming three months. Moreover, the outlook for twelve months ahead remains relatively upbeat, with +43% of survey participants anticipating an uplift in sales activity, rising from +33% in April.

House prices continued to retreat nationally, posting a -17% result compared to -7% in April. Consequently, having been steady in both March and April, the latest data suggests that house prices fell slightly in May. Regionally, Scotland and Northern Ireland saw house prices continue their upward trajectory.

RICS Chief Executive, Justin Young, said: "Despite an improving overall outlook, today’s data reveals that confidence in the housing market is beginning to dip – just as parties launch their manifestos. While both the Conservatives and Labour have staked their claims as being the party of home ownership, for that to be the case, greater attention must be paid to improving conditions for Generation Rent, who are faced with rising rents and a lack of suitable options. This particular demographic – typically made up of people aged between 18 and 40 – has doubled in the last two decades, so politicians need to focus on them, as well as homeowners, as a means of gaining the support of a growing portion of the electorate.

“The housing market needs policies that think longer term, not short, and awareness that the different tenures are interlinked, so there is no one solution that will fix the situation. With the market under strain, the supply and demand gap in both lettings and buy side continues to create issues.

“With higher interest rates continuing to hamper first-time buyers, politicians are looking to win support from this group of buyers –as the Conservatives have done with Help to Buy 2.0 and Labour with the Freedom to Buy promise.

“Many millions of voters are feeling both cost of living, and market impacts; the political parties see this and are trying to entice the electorate with proposals in their manifestos this week.”

Tarrant Parsons, RICS Senior Economist, said: “The recent recovery across the UK housing market appears to have slipped into reverse of late, with buyer demand losing momentum slightly on the back of the upward moves seen in mortgage rates over the past couple of months. Nevertheless, expectations point to this delaying, rather than derailing, a modest improvement going forward. Indeed, respondents continue to envisage a more positive trend in sales activity coming through over the year ahead, although this is likely predicated on the Bank of England being able to start lowering interest rates in the coming months.”

Notes for editors:

The full report may be found at this link. Commentary from survey respondents regionally can be found in the economic pdf on the back pages – you are free to use these.

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