U.K. homeowners shouldn’t count on making money from their property as the pace of price gains slows, according to Housing Minister Grant Shapps.
“Gone are the days where you buy a house for capital appreciation,” Shapps, a member of Prime Minister David Cameron’s Conservative Party, said in a Sept. 6 interview. “House prices can still go up, but they need to go up in line with or less than increases in average earnings for the long term.”
On average, house prices rose 147 percent from 2000 to the market’s peak in October 2007, according to Nationwide Building Society, a Swindon, England-based lender. That was 11 times faster than consumer-price inflation of 13.2 percent. Values then slumped 21 percent through February 2009, though they’ve since increased 12 percent.
A shortage of homes, which may reach 1 million by 2015, is helping to support prices, according to London-based property broker Savills Plc. Record-low Bank of England interest rates have also bolstered demand, and prices.
The government is trying to address the shortage by freeing up public land, offering municipalities incentives to approve more housing plans and encouraging banks to increase lending to prospective buyers.
“We need a greater supply of homes in this country,” Shapps said by phone. “We have an unacceptable situation where people cannot afford to have a roof over their head.”
The number of homes built in England and Wales last year was the lowest during peacetime since 1924, according to the Department of Communities and Local Government. Homebuilders such as Barratt Developments Plc, the U.K.’s largest by volume, are trying to increase profits by building more houses than apartments.
The U.K. housing market has failed to gain momentum as banks curtail lending and inflation erodes spending power. Home ownership in England will fall to less than two-thirds over the next decade amid the scarcity of property and banks’ demands for larger down payments, the National Housing Federation said Aug. 30.
“People can’t afford to buy the product because they can’t get the mortgages,” Shapps said. “They can’t get the mortgages because the multipliers are so high for how much they require compared with their salary.”
The government is trying to speed up the planning process to boost real-estate development and spur economic growth. The Draft National Planning Policy Framework has streamlined more than 1,000 pages of regulations to 52 pages.
“Decision-takers at every level should assume that the default answer to development proposals is ‘yes’,” except where it may compromise sustainable development, the government said in the document.
“You cannot have a marketplace whereby the single most important commodity in peoples’ lives is simply unobtainable for much of the population,” Shapps said. “We need a long-term period of house-price stability in order to allow the majority of the population to afford homes again.”
U.K. house prices fell for the first time in four months in August as Britons grew more pessimistic about the economy, Halifax said yesterday. Prices dropped 1.2 percent from July, the mortgage unit of Lloyds Banking Group Plc said in a statement. From a year earlier, prices declined 3.9 percent to an average of 161,743 pounds ($258,500).