Government initiatives to support home ownership and build new houses will fail to have any real impact in 2016, with UK property prices expected to keep climbing.
None of the 88 economists who responded to this question* suggested a general fall in prices — 54 said current policies would either have little impact, or would only succeed in increasing demand.
In this year’s Autumn Statement, the chancellor announced a new 3 per cent stamp duty surcharge on buy to let and second home buyers from April, while also promising new affordable homes and a Help to Buy scheme focused on London.
But even among sympathetic economists, the near-unanimous view is that the measures only scratch the surface of a fundamental problem.
Chris Martin, professor of economics at the University of Bath, did not “expect any change from the pattern of overblown government promises and no action”.
Ryan Bourne, head of public policy at the Institute of Economic Affairs, said he expected prices to “stabilise somewhat this year” but added they were “still much higher than they need be due to a restricted supply-side. Undoing this damage would take a generation, as the new building required would be a small proportion of the existing stock — meaning it would take a long time for any liberalisation to make an observable difference to affordability”.
Ethan Ilzetzki, a lecturer at London School of Economics, said recent announcements were a “continuation of a long tradition of a pittance on the supply side and highly inefficient subsidies to boost housing demand”.
He added that while the Autumn Statement promised 400,000 new affordable housing starts, this was still not sufficient to keep up with population growth and that with no meaningful increase in supply, the help-to-buy measures “translate one-to-one into housing prices. They are therefore a subsidy to existing homeowners, not new buyers”.
While prices are expected to continue rising faster than incomes, none of the respondents expect anything like the double-digit increases commonplace in the south over the past few years.
Many noted that a likely small increase in interest rates — and more possible action from the FPC on affordability criteria — could help dampen down froth.
It is only at the top end of the London property market, where prices are expected to be hit by the threat of Brexit, reduced interest from foreign investors and higher levels of stamp duty, where there is any expectation for a fall.
Nick Bosanquet, a professor at Imperial, said he thought the mooted risk of a collapse in Buy to Let was “small”. But he warned of a “bubble risk” in one specific area: flats in the London riverside areas where tens of thousands of units are set to come on to the market in the next 18 months.
He predicted falls of 20 to 30 per cent were likely, due to reduced foreign demand, but added “the government must not mistake this for a national housing crisis and take further action which will lead to even more market instability”.
There was sympathy for the government among some respondents. Jagjit Chadha, professor of economics at the University of Kent, said recent policies were a “step in the right direction” but “houses still look too expensive for people on below median incomes”.
Kate Barker, a former member of the Bank of England’s Monetary Policy Committee and chair of a 2004 report into housing supply, said it would be “very surprising” if any policy was able to generate much new supply immediately.
She added however that “any policy steps towards new settlements will encourage investment in construction skills and materials boosting potential future supply”.
*Full text of answers to the question
What effect are government policies likely to have on the housing supply and demand in 2016? How much will they contribute to likely changes in house prices?
Government policies will act in both directions on the demand for housing in 2016 via increases in stamp duty, macroprudential policy and schemes like Help to Buy. Housing supply growth will continue to accelerate but slowly, driven by planning reforms and ongoing improvements in the housebuilding sector. The net impact of government policies on house prices is likely to be small, with the growth of average earnings and the path of interest rates being much more important factors.
House prices will rise unless we build 400k pa, overwhelming in the SE. We won't — although the private sector would if govt allowed them to. So ongoing govt policy is the real issue, not recent tinkering.
More effect on demand than on supply in the immediate future. Getting supply moving ahead is a slow process. So some more upwards pressure on prices.
Howard Archer, Chief European & UK Economist, IHS Global Insight
We doubt that the government policies will have a major impact on housing supply and demand in 2016. We also doubt that they will have a major impact on house prices which we expect to rise 6-7% in 2016.
While the Chancellor has announced measures aimed at boosting housebuilding in the Autumn Statement, it will take time before they have a significant impact on housing supply — and that is assuming that the measures prove successful. Furthermore, the shortage of properties is acute so sustained, major progress needs to be made on the house building front to really eat into this problem.
In the near term, it is very possible that the decision to impose a 3% surcharge on Stamp Duty on purchases of buy-to-let properties and second homes from April 2016 will lead to an increase in housing demand and exert upward pressure on prices as prospective buyers look to beat the increase. Further out, the move could modestly dilute housing market activity and upward pressure on prices.
Meanwhile we doubt that the London Help to Buy scheme will have a major overall impact on the national housing market.
Melanie Baker and Jacob Nell, Morgan Stanley
There are so many government policies on housing that it is difficult to be confident about the net impact. For instance, restrictions on pension savings by higher income earners may support buy-to-let demand, while the Autumn Statement decision on additional stamp duty on BTL seems likely to lead to some cooling in demand (and prices) after April 2016. On balance, however, we think government policies will be less important than interest rates. Given what we think are overvalued house prices, we expect a modest fall in house prices as interest rates start to rise.
Kate Barker, former MPC member
Very surprising if policy were able to affect new supply much in any one year though expect continuing supply from the policy which enables conversions from offices to residential. Any policy steps towards new settlements will encourage investment in construction skills and materials boosting potential future supply. Combination of FPC alertness and tax changes to BTL may dampen effective demand and result in a subdued house price trend — up maybe 3-5% on average but of course will be much local variation.
Nicholas Barr, Professor of Public Economics, LSE
Not much effect — the core problem is too few houses. Government policy is doing little more than making a small dent in the problem
Ray Barrell, Professor, Brunel University and VA Research
Housing policy changes are slowly dribbling out, but so far short of the scale needed. The Autumn Statement contained plans to encourage an increase in house building, but the target remains probably 100,000 a year below the rate of household formation, and hence real house prices are likely to continue to rise. Changes to building constraints on the Greenbelt have already started, but these are not likely to be a major factor in increasing housing supply. Subsidies for building affordable housing to buy (and let) are also unlikely to have a major impact. Both will have a small positive impact on supply in 2016, whilst increases in buy to let levies will have to be absorbed by sellers with little or no impact on the supply of housing.
Reducing the growth of real house prices in a sustainable way is one of the changes needed to help rebalance the economy, and this can only be achieved by a very significant increase in the rate of house building. A significant increase in housebuilding can only be achieved by a systematic dismantling of the Greenbelt combined with careful planning of the resulting urban development.
Charles Bean, Professor of Economics, London School of Economics
Without being explicit about exactly which policies are under consideration, ie the nature of the counterfactual, I am afraid this is not a very meaningful question.
Nick Bosanquet, Professor, Imperial
Govt keeps intensifying housing price problem by demand subsidies — latest is misnamed starter homes programme which has no immediate supply component at all. So house prices will be rising faster than would otherwise be the case. Lack of alternative assets with continued equity decline will also be fuelling house prices.
Risk of collapse of buy to let market when they ”all sell at once”(Governor Carney again) is small. Rental incomes are rising and much of the buy to let purchase was outside London where yields are favourable. Government interventions have already destabilised the market for owner occupied housing — now threatens the buy to let market which has widened access and choice as well as increasing labour mobility. If Govt wanted to do something useful, it could increase incentives to elderly couples to free up family houses so as to bring out near term increases in supply — stamp duty holiday on purchase of smaller properties would be one option.
There is however a bubble risk in one specific area — flats in London in a broadly defined Riverside stretching from Finsbury Park in the North to Elephant and Castle in the South. With reduced foreign demand (missing trillions in Chinese stock markets), 60-70,000 flats will come on the market in next 18 months many outside charmzones. Banks will be putting pressure on developers. 20-30% price falls likely in London flats. Govt must not mistake this for national housing crisis and take further action which will lead to even more market instability.
Ryan Bourne, Head of public policy, Institute of Economic Affairs
There are so many different government policies pushing and pulling in different directions here. I think government policies overall (especially tight land use planning laws and tax treatment) raise prices structurally much higher than they need be. Some recent policies such as inheritance tax changes, Help to Buy stuff etc add to this pressure; others such as high stamp duty rates at the top end and for second homeowners dampen them. Overall, with small rate rises I expect house prices to stabilise somewhat this year. But house prices are still much higher than they need be due to a restricted supply-side. Undoing this damage would take a generation though, as the new building required would be a small proportion of the existing stock — meaning it would take a long time for any liberalisation to make an observable difference to affordability.
Francis Breedon, Professor, QMUL
Tax changes already made have significantly increased the user cost of housing — particularly higher value and buy to let. Low interest rates have supported the market so far (creating a high present value of future rents for the buy-to-let sector in particular) but as mortgage rates rise demand will fall and significantly lower house prices are possible.
Annika Breidthardt, European Commission
The Council recommends that the UK "Take further steps to boost supply in the housing sector, including by implementing the reforms of the national planning policy framework." An assessment of this recommendation will be published in February 2016.
George Buckley, Chief UK Economist, Deutsche Bank
The tightening up of tax incentives for buy to let — whether it be by limiting tax deductibility of mortgage payments/repairs or the planned rise in stamp duty — will reduce the profitability of this sector. This could be more pronounced in the London market where a number of other issues present risks to the market including: sterling’s strength (encouraging profit-taking/fewer foreign purchases), the lesser need for safe-haven assets, high valuations, policy exit (reduced liquidity), fragile global growth, lower oil prices (given past demand for London housing from oil producing nations), a delayed supply response and finally the risk of Brexit.
Alan Budd, former MPC member
Very little effect on supply; some effect in increasing demand. Hence house prices are likely to continue to rise.
Willem Buiter, Citigroup, Global Chief Economist
The FPC’s macroprudential policies may reduce the availability and increase the cost of residential mortgages. This may weaken housing demand a bit. Brexit risk will reduce housing demand at the upper end of the scale.
No big boost to new construction is likely as long as nimbyism dominates the urban and rural development, as it has since the Town & Country Planning Act of 1947.
Jagjit Chadha, Professor of Economics, University of Kent
Government policies have been a step in the right direction but we need more affordable housing, easier planning regs and effective transport links to jobs: simple really. Houses still look too expensive for people on below median incomes — it is not clear to me that such people should necessarily be denied opportunities to buy because of elevated house prices in conjunction with interest rate spreads and borrowing constraints. The building of much more affordable housing would be a great start.
Alan Clarke, Economist, Scotiabank
The proposed increase in stamp duty for second homes could lead to a bringing forward of activity now to beat the implementation of the tax. However, that should give way to a more subdued pace of activity further ahead once the tax hike has come in.
David Cobham, Professor of economics, Heriot-Watt University
Very little effect. They — and UK society — have not yet grasped the nettle, and house prices will continue to rise albeit more slowly.
Aengus Collins, Country Forecast Director, The Economist Intelligence Unit
After years of stoking demand with next to no consideration for supply-side changes, the government has at least acknowledged the need for more housebuilding. This will mitigate upward pressures on house prices, as will the demand-side impact of tightening fiscal policy and, from the final quarter, the start of a BoE tightening cycle, albeit an exceptionally gradual one. However, nothing that the government is doing amounts to the kind of supply-side boost that might return the housing market to a healthy equilibrium and diminish its distorting influence on the wider economy.
Diane Coyle, Professor of economics, University of Manchester
Nothing the government has done will affect housing supply. Almost all their policies have tended to boost demand and therefore prices. Policies need to increase supply substantially and there is nothing in current policies to achieve the necessary increase. I can't see the market doing this; it will need a public sector housebuilding programme.
Howard Davies, Chairman, Royal Bank of Scotland
There may be some sell-off from the buy to let sector, and a modest increase in new housing starts, but not enough, unfortunately, to change the supply/demand imbalance. So in London and the South East prices will continue to rise.
Panicos Demetriades, Professor of Financial Economics, Ex-Governor of Central Bank of Cyprus and member of the Governing Council of the ECB, University of Leicester
Government policies are likely to act as a check on growth in house prices, particularly in areas where BTL and second homes are popular.
Wouter Den Haan, professor of economics, London School of Economics
I suspect that demand forces are likely to remain very strong although I find the continued strength somewhat puzzling. These will dominate any possible increase in housing supply and so I suspect continued upward pressure on house prices.
Michael Devereux, Professor, Oxford university
The main elements of the policy seem to be to subsidise sales of public housing, and subsidise mortgages. That will reduce the supply of rental accommodation, and push up rents and house prices.
Peter Dixon, Economist, Commerzbank
Government measures to raise buy-to-let stamp duty may take some heat out of the market, though possibly not before a huge surge in activity between now and April. Moreover, (a) it does not affect companies or funds and (b) purchase costs (including stamp duty) can be offset against capital gains tax. So it ultimately may not be the smart move it sounded at the time.
In any case, this move does nothing to tackle the real problem, which is a lack of supply. The private sector simply does not have the incentive to build the number of affordable properties which the UK needs. Simply put, it is a market where the government tries to move the demand curve but is unable or unwilling to move the supply curve sufficiently.
Martin Ellison, Professor of Economics, University of Oxford
The prime focus of government policies is on the demand side, with help-to-buy, buy-to-rent and right-to-buy all increasing overall housing demand. Whilst potentially desirable from an equity perspective (they enable some people to buy homes who otherwise would not be able to), they do very little to address the problem of a lack of housing supply. The roll out of right-to-buy to tenants of housing associations is likely to make matters worse.
The Chancellor deserves some credit for relaxing some planning regulations, but much more is needed. With government policy stimulating demand and having very little impact on supply, the effect on house prices will be inflationary.
Andrew Goodwin, Lead UK Economist, Oxford Economics
I would not expect their current policies to have a material impact on either supply or demand — on both sides the policies appear to be too small to cause any noticeable change.
But the long-term failure to increase house building is likely to sustain the upward pressure on house prices, particularly in pressure points such as London and the South East, and we would expect 2016 to be another year where house prices rise more quickly than household incomes.
Jonathan Haskel, Professor of Economics, Imperial College Business School
Continued low interest rates and inability to raise supply says to me that house prices keep rising. The (small) changes to buy to let for example might dampen prices a bit outside London, but London seems a bubble of its own.
John Hawksworth, Chief economist, PwC
The government has begun to introduce some sensible policies to boost housing supply, for example in relation to planning reform, but these will take many years to have an impact. At the same time, some of their other policies (eg. Help to Buy) will just tend to stoke up demand and push up house prices. We therefore expect average UK house prices to increase by around 5-6% in 2016, well ahead of earnings. The affordability problems facing generation rent will therefore continue to mount.
Neville Hill, Credit Suisse
Very little either way. Demand for housing will continue to grow faster than supply, so house prices are likely to rise in the high single-digits.
Brian Hilliard, Société Générale, Chief UK economist
The latest extension of Help to Buy will have some impact on both demand and supply but the surprising weakness of housing construction in H1 15 hints at only a limited supply response to that demand increase next year. This and the restrictions on Buy to Let will support a minor but temporary increase in house price inflation in the first half of the year.
Steve Hughes, Head of Economic and Social Policy, Policy Exchange
Housing supply in England will rise to nearly 150,000 completions in 2016 (~130,000 in 2015). However, the Government’s Spending Review announcement for 400,000 affordable homes is unlikely to have a material impact on housing supply in 2016, given the time it takes for programme spend to be allocated and for homes to be planned and built. Similarly so for the Right to Buy extension and its home replacement policy. The “slower burn” impact of planning reforms under the Coalition Government, most notably the National Planning Policy Framework (2012), is likely to continue driving the numbers up moderately. Demand will be driven by the interest rate environment — even a small rise in interest rates will raise expectations of further rises to come, making first time buyers more cautious taking on big mortgages. This would not have a material impact on supply in 2016, but could have the following year. House prices to rise by around 5%, a slightly slower pace than in 2015 (~7%).
Ethan Ilzetzki, Lecturer in Economics, London School of Economics
Recent policies are a continuation of a long tradition of a pittance on the supply side and highly inefficient subsidies to boost housing demand. The UK’s restrictive planning system is the main reason that the UK virtually heads the world league table in housing prices. In fairness, the autumn statement does promise 400,000 new affordable housing starts by 2020-21, but even with this the increase in housing supply is unlikely to keep up with population growth. On the other side of the equation, help-to-buy measures do nothing to address affordability. With supply as unresponsive as it is in the UK, these subsidies translate one-to-one into housing prices. They are therefore a subsidy to existing homeowners, not new buyers.
Richard Jeffrey, Chief Investment Officer, Cazenove Capital Management
While housing supply may improve modestly during 2016, shortages of construction capacity (particularly in the area of skilled labour) will contain the extent of that improvement.
It is evident that the MMR caused a temporary hiatus in the housing market, but that activity is now rebounding. I would expect this situation to persist. In addition, the anticipated rate increases could stimulate the housing market as new home buyers and those looking to trade up seek to lock in still-low fixed-rate borrowing.
Overall, therefore, I would expect house prices to continue to rise during 2016.
The one exception to this could be central London, where the very high rate of stamp duty and Brexit uncertainty could continue to depress the market for higher-priced properties.
Oliver Jones, Economist, Fathom Consulting
Government policies such as an additional Help-To-Buy scheme in London are not likely to help housing supply, just as they have failed to do so far. In any case, the problem in the UK is not a shortage of supply, but an excess of demand, fuelled by unprecedented stimulus in the form of low interest rates and the various other fiscal subsidies for house purchase currently in place. Most if not all of that stimulus will remain in place, supporting further growth in house prices (already substantially overvalued).
However, if the Government &/or FPC were finally to implement serious curbs to the BTL market, the supply of properties for sale may begin to increase. Should the fragile arithmetic that governs BTL no longer hold up, or indeed even if investors perceive that it may be turning against them, they would be far more likely to sell their properties than normal households, and a (long-overdue) correction in house prices would begin.
Dhaval Joshi, Chief strategist, BCA Research
New home construction has accelerated to about 140 thousand a year but this is still well below the 150-180 thousand a year in the 1990-2008 period. Meanwhile, population growth has accelerated, meaning there is still an inadequate supply of affordable housing. This will support prices at the bottom-end and mid-range of the market.
However, at the very top-end of the market, the government’s changes to the stamp duty rates have undoubtedly dented demand. Consequently, top-end prices are likely to soften.
DeAnne Julius, former MPC member, now Chair of UCL
Housing supply is beginning to improve and I expect further improvement in 2016. However, housing demand will also be stimulated by the government's latest policies so we will probably see further single-digit increases in average house prices.
Stephen King, HSBC, Senior Economic Adviser
Given the UK's demographics, demand for housing is likely to outstrip supply, despite the government's pledge to build a million new homes in this parliament. While the changes to 'buy-to-let' rules may have an impact on the path for house prices through the course of the year, they're likely to end up higher by the end of the year.
Simon Kirby, Head of Macromodelling and Forecasting, NIESR
Government policy seems to broadly have the aims of inducing a little bit more supply and a little bit more demand. I’m not sure how dramatic the effect of government policy on house prices will actually be. The current focus of fiscal, and potentially macroprudential policy, on the buy-to-let part of the market may temporarily dampen demand, but will do little to change the trajectory of house prices over the medium to longer term: increasing in real terms and increasing relative to average earnings.
James Knightley, Senior Economist, ING
Minimal given the number of foreign buyers still keen to make purchases.
Ashwin Kumar, Director, Liverpool Economics
Some measures will increase new build, however these will take a couple of years to result in increases in supply. So in the next year, there is little prospect of domestic factors restraining house price growth in high-demand areas.
Ruth Lea, Arbuthnot Banking Group, Economic Adviser
I do not expect the various measures to have much impact on the housing market. Insofar as they encourage demand more than supply they are likely to have marginal upward effect on prices.
Grant Lewis, Head of Research, Daiwa Capital Markets Europe
The government's efforts to boost housing supply are unlikely to have a meaningful impact, particularly within London where the needs have been most acute over recent years. Indeed, in London in particular, the increased uncertainty resulting from recent changes to the tax regime for investors as well as some exchange rate moves in emerging markets may well see a cooling in demand, something that may give some developers pause for thought until the impact on demand becomes clearer. But against a backdrop of very low financing costs and a strong labour market, prices nationally will remain buoyant.
John Llewellyn, Partner, Llewellyn Consulting
Very little effect on supply; and somewhat more effect on demand so that, as usual, most of the consequences will be on prices.
Gerard Lyons, Chief economic adviser to Boris Johnson, the Mayor of London
One key issue that indirectly influences the housing debate is infrastructure. We should have taken advantage of incredibly low interest rates to fund more long-term necessary infrastructure spending than we have done, particularly around transport. But where there has been such infrastructure investment especially in London, as highlighted by Cross Rail or tube line extensions, it is having a big impact. Where transport is improved or expanded, such as in London, it is helping make areas attractive to both live in and for developers to build supply in. This is helping boost supply.
Government policy is aimed at boosting home ownership. While it is clearly understandable why some people may prefer to buy than pay high rents, the focus of policy needs to be on boosting housing supply. The biggest issue in the UK is a lack of housing supply.
The current high level of house prices suggests limited immediate upside, apart from specific prime locations. That being said, the combination of a rising population and increasing real incomes may keep prices underpinned. The other impact is credit availability and future relationship between microprudential, macroprudential policy and monetary policy, the net effect of which may be neutral for prices.
George Magnus, Senior economic adviser, UBS
Charitably, the government's policies may have an incremental effect on housing supply in 2016, perhaps surpassing the current rate of about 140k new homes. But this is still low foothills when the government should be aiming for higher slopes by bringing forward its plans.
Stamp duty changes certainly seem to be dampening demand at the higher end of the market. Prices are likely to continue to stagnate, but it's hard to see demand-supply imbalances resulting yet in lower house prices yet.
Chris Martin, Professor of Economics, University of Bath
I don't expect any change from the pattern of overblown government promises and no action.
Michael McMahon, Associate Professor of Economics, University of Warwick
On the supply side, it is not an area I follow closely so I may be missing recent policy changes. But in general, I have been surprised that successive governments have been less able to react to suggested changes in policies affecting housing supply such as proposed by various Kate Barker reports.
On the demand side, I guess it is the policies of the Bank of England that I expect to have a bigger effect (rather than the central government). This includes interest rate effects from monetary policy (affecting the price of credit) and macro prudential policies (affecting the supply of credit for housing transactions).
Do I have a sense of whether house prices will go up or go down in 2016? I would hope for a moderate increase but I would not attach high confidence to that prediction!"
Costas Milas, Professor, University of Liverpool
It is difficult to say. Historically, interest rate hikes appear to have driven house prices down. Let's focus on the interest rate then.
Patrick Minford, Professor of applied economics, Cardiff Business School, Cardiff University
Very little. We have been here before time and again. The underlying trend in UK real house prices is 3% per annum growth, reflecting weakly growing supply and steadily growing demand. Macro-prudential controls are distortionary but ineffective (see above). The 'new' new planning approach cannot change attitudes on the ground, which remain the political reality for local councillors.
As real house prices are still a bit below trend I expect them to rise faster than this 3% real in the next few years as they catch up with the trend.
Allan Monks, JPM Research, Economist
We expect housing demand to improve owing to a combination of lower mortgage rates, high confidence and solid real income growth. Together with the very limited supply of property coming on to the market recently, this points to further house price gains in 2016. The main risk is that action by the Bank of England’s Financial policy in 2016 — perhaps this time in the Buy to Let market — could have some unintended consequences which feed back into sentiment, triggering a slowing in the housing market similar to the one seen during 2014.
Kathrin Muehlbronner, Moody's, Senior Vice President — Sovereign Risk Group
Mixed, with some government policies such as those relating to Housing Associations aimed at increasing housing supply by pushing them to focus on development, but other policies such as Right to Buy and the Starter Homes initiative continuing to boost demand. A third set of measures such as the increase in stamp duty for high-value houses and now for buy-to-let properties are aimed at taking some of the froth off the housing market. Overall supply is likely to continue to fall short of ongoing rapid increases in demand, which should lead to further increases in house prices in 2016.
Rain Newton-Smith, CBI, Director of Economics
The government has rightly focused on tackling our chronic undersupply of new homes. We have seen successive announcements at Budget and Autumn Statement which send a clear signal that the focus is on building affordable homes for sale for young and first time buyers.
However, a healthy and vibrant housing market requires a mix of tenures: we must make sure this includes homes for sale, affordable and social rented homes and a private rental sector supported by private landlords and institutional investors building to rent.
Erik Nielsen, Global Chief Economist, UniCredit
Marginally positive for supply, but prices (also driven by the BoE behind the curve) will probably move slightly higher on average. High-end housing, where the turnover has been killed by the progressive stamp-duty, will start to see some significant decline in prices, although at continued very little turnover.
Charles Nolan, Professor, University of Glasgow
The prospects remain that a focus on short-term palliatives to take some fizz out of the housing market will dominate a longer term policy focus to boost decisively the size of the housing stock.
David Owen, Chief European Economist, Jefferies
In a historical context house price-income multiples are now seemingly high everywhere. Prices may be underpinned by a lack of supply, but have been under pressure from macroprudential policies (Mortgage Market Review) and tax (stamp duty) changes. A key issue for 2016 is what happens to the buy-to-market, already under pressure from tax changes, but also likely macroprudential polices and at some point in 2016, higher rates. If housing was cheap relative to incomes then these would be less of a headwind. The risk is that the housing market underperforms expectations in 2016. Given the long lags involved additional housing supply may come at the wrong point of the cycle, especially when it comes to buy-to-let investors and properties bought off-plan by foreign investors. A potential Brexit may also impact parts of the market in 2016.
Joseph Pearlman, Professor of Economics, City University
The policies are a joke. Help to buy will just increase prices. Changes to Inheritance Tax on houses only is just irresponsible and will create further distortions in the market; applying the new rule to all assets is much more intelligent. However if the government follow the recommendations of Andrew Adonis on the supply side then the government could be outstandingly successful.
John Philpott, Director, The Jobs Economist
While policy ought to be focused solely on boosting housing supply, the government is still acting to support demand. I therefore expect only a modest relative supply improvement in 2016. This should be enough to reduce house price inflation to around 5%, less than the likely out-turn for 2015, but still easily outpacing both expected consumer price inflation and average wage growth.
Jonathan Portes, Principal Research Fellow, National Institute of Economic and Social Research
New government policies are likely to have relatively marginal impacts on supply and demand in 2016; developments in the wider economy will be more important. More broadly, of course the failure of successive government to increase housing supply over the past 20 years has been very damaging; and this government has made things worse by ill-judged measures that primarily increase demand, although the most recent tweaks to policy have been somewhat more oriented to boosting supply, which is welcome.
Adam Posen, President, Peterson Institute for International Economics
Government policies contribute hugely to UK housing prices. I remain sceptical that there will be any policy changes however.
Vicky Pryce, Chief Economic Adviser, CEBR
Lack of enough new build has been a long term problem keeping house prices up in the UK but there are large regional variations. The Government has now upped the annual housing budget to £2b and is planning to build 400,000 new affordable homes by 2020. The Autumn Statement also saw the launch of London Help-to-Buy. The scheme will help Londoners with a 5% deposit get an interest-free loan worth up to 40% of the value of a newly-built home, compared to the current 20%.
That is all good but impact may be longer term without alleviating the pressures in 2016. In reality the key driver of price growth of some 5.6% in 2015 which could well persist in 2016 has been a substantial decline in the number of properties being put up for sale in the UK.
London is no longer expected to show the strongest house price growth over the next five years, as lack of affordability in the capital increases demand and prices in the South East and East of England.
London property remains subdued, reflecting hefty stamp duty increases as well as the fragility of overseas demand at present. at the same time people intending to move and upgrade have been deterred by the stamp duty they have to pay as they move up and that has reduced the willingness to put houses up for sale. Higher rates of stamp duty for Buy-to-Let properties come on top of reductions in Buy-to-Let tax relief that were announced in the July 2015 budget. Although the idea is that there will be more properties available for first time buyers it will also lead to a reduction in the supply of rental accommodation in the UK, as Buy-to-Let becomes a less attractive investment. The result will be increased costs for the 35% of UK residents who are renters.
Additionally, as of November 26, tenants of five housing associations will be able to start the process of buying their own home — an extension of the Right-to-Buy scheme outlined in the Conservative party’s manifesto. The most likely result of the sale of housing association properties through Right-to-Buy will be a further contraction of rental supply, potentially putting upward pressure on rents."
Victoria Redwood, Chief UK Economist, Capital Economics
Government efforts to boost the supply of housing are unlikely to have much positive impact in 2016, when the existing shortages of material and, in particular, skilled labour will continue to act as a brake on the sector’s output. On balance, we suspect that the higher rates of stamp duty faced by buyers of additional homes will curb demand among landlords, offsetting any positive impetus coming from policies such as Help to Buy. But provided that house price inflation stays in a low single-digit range, rising real incomes and low levels of unemployment should support a modest improvement in demand and sales.
Ricardo Reis, Professor of Economics, London School of Economics
The deregulation needed to boost housing supply has barely happened, especially in the places where there is a shortage of houses (London). In turn, the main government policy affecting housing demand may well be the voter's choice on leaving the EU.
Bridget Rosewell, Senior Adviser, Volterra Partners
The demand for housing will continue to outstrip supply and overcoming nimbyism will be difficult. So house prices will rise in areas of increasing demand, and areas where existing housing is popular.
Philip Rush, Nomura, Senior European Economist
Once again, government policy is a small support for supply and a much bigger support for demand, which is stoking price pressures. Measures like the Help to Buy scheme are well meaning but with the price response consuming any additional affordability, the schemes ultimately harm those people who are meant to be helped.
Michael Saunders, Citi,
Little effect either way: modest rise in housebuilding, modest subsidy to demand from HTB.
Andrew Sentance, Former MPC member and senior economic adviser, PwC
Government policy on housing is not coherent at the moment. There are some positive elements — trying to relax supply-side constraints and provide targeted help to first-time buyers. But the demand-side support is too generous and interest rates are too low, so house prices continue to rise ahead of wages and general inflation. I expect this pattern to continue during 2016, with house prices up by over 5% over the year. Until we have more rational monetary policy attuned to a recovering economy, we will continue to see unwanted house price escalation and other unwanted consequences.
Philip Shaw, Chief Economist, Investec
Stamp duty changes have taken the froth from the top of the housing market, while tax restrictions and stamp duty hikes in April may dampen buy to let demand in due course. If this releases more homes for owner occupation one suspects that the change will be marginal. Almost needless to say, what is really required is a surge in housebuilding. This may happen next year, but it is virtually impossible to envisage the doubling necessary to match projected household formation. We are not factoring a big increase in supply into our 4.5% house price inflation forecast for Q4 next year, but there will in any case be a complex cocktail of influences including income gains, possible rate increases and changes to macroprudential policy.
Andrew Simms, Director, New Weather Economics
Without tackling the speculative exploitation of the housing market for returns that are hard to find elsewhere in the economy, for asset accumulation and buy-to-let profits, it is hard to see how government housing policies are going to improve access to affordable homes for most people.
Poorly directed stimulus will, if anything, see prices continue to rise beyond the reach of many. This seems to be the case with Help to Buy. An excessive focus on private construction further skews the sector toward feeding the worse dynamics in the market.
Housing is a window on to a dysfunctional market likely to drive an era of economic change. Denied affordable housing options, upcoming generations are likely to need, and drive, a wave of innovation in housing, from more communal to self-build approaches, the reclaiming of empty and abandoned property, and other approaches like community land trusts that delink land values from house prices. But to really dent the problem the simple and most effective solutions to the housing crisis would be for the public sphere to start building homes that are protected from excessive speculation, and for the reintroduction of successful checks and balances — common internationally from Germany to the United States — to prevent profiteering and exploitation in the rental market."
Andrew Smith, Chief Economic Adviser, Industry Forum
In general the thrust of government policies has been to boost demand through subsidies for purchasers, with little evidence that this is feeding through to supply. This will remain the case in 2016 and prices will rise further, the more so if changes to buy-to-let taxation bring forward some demand in the new year. Longer-term, interventions in buy-to-let and high stamp-duty at the top end may dampen price inflation in some market segments but do little to resolve the supply/demand imbalance.
Peter Spencer, Professor of Economics, University of York
The housing market is not functioning very well. It is not just the weakness of the supply response that concerns me but the gross intergenerational misallocation. Stamp duties make it prohibitively expensive for older people to trade down and relocate once the children have left the nest, preventing young families from trading up. It is unrealistic to think that this block could be relieved by ramping up house building, which is only a second best solution. The sheltered housing stock is under severe pressure and extending the right to buy to housing association tenants will make this much worse.
The increase in stamp duty for buy-to-let purchases, following upon the phasing out of mortgage interest tax relief is a step in the right direction. But by setting an April deadline the Chancellor is repeating the mistake of his predecessor Nigel Lawson who set an August deadline for cohabiting couples to claim double mortgage interest relief in his 1987 Budget. This mistake guarantees a bunfight in the first quarter followed by a relapse over the rest of the year.
James Sproule, Chief Economist, IoD
The key is supply, boosting demand through loan assistance simply exacerbates the problem.
Gary Styles, Director, GPS Economics
In practical terms the impact on effective housing supply will be very small. Housebuilders and developers have largely hoodwinked the government into providing ever more support to their industry and this has largely driven the profits of this sector over the past few years. Specific house building targets with penalties for underperformance would have been far more effective in delivering more supply.
The UK needs a full and open review of housing policy and this should be UK wide and not just focused on the requirements of London and the SE. Housing is far too important to the economy and general well being to leave to politicians, speculators and housebuilders.
Phil Thornton, Lead consultant, Clarity Economics
Given the latest and most previous government policies have aimed at the demand side by making it slightly less difficult to buy a home, it is likely that they will continue to support house price. Given that what is needed to ease the housing crisis — but which might see prices fall — is a major government social housing programme, all eyes should be on the London mayoral content where victory by Sadiq Khan could see that process begin albeit slowly
David Tinsley, UK and European economist, UBS
In the short run a rush to beat stamp duty on buy-to-let properties will support the market. After April the market could look soggier.
Kitty Ussher, Managing Director, Tooley Street Research
Demand in fashionable areas will rise far faster than any attempts to increase supply could possibly keep pace with, causing prices to keep going up.
John van Reenen, Director, Centre for Economic Performance
As noted above they are simply stoking up demand whereas the problem is one of supply. http://cep.lse.ac.uk/election2015/press1.asp?index=16
Daniel Vernazza, Lead UK Economist, UniCredit
The housing policies announced by the government will probably moderate housing demand. In particular, the measures announced to rein in the Buy-to-Let market will reduce demand and increase housing supply once they come into effect. Government support for new housebuilding will help to improve supply but it’s still nowhere near enough.
Keith Wade, Chief economist, Schroders
Policies to cool the top end of the market are succeeding and along with the downturn in international money from the emerging world will put downward pressure on prices in 2016. Supply still likely to be inadequate.
Peter Warburton, Chief Economist, Economic Perspectives
Housing supply remains tepid; despite some uplift in housing starts the shortfall on demand is still huge. Government policies, eg increase on Stamp Duty for Buy-to-Let, are likely to reduce the gap, but only marginally. There may be some modest impact reducing pressure for house prices to rise. However, pension reforms mean that large amounts of money may be released and potentially invested in property. House price appreciation is still likely and might strengthen in 2016. Government policy will have little impact.
Simon Wells, HSBC, Chief UK economist
Even if the government achieves its aim of building around 200,000 new houses per year over the next five years, supply will still not be growing as fast as it did in the 1970s. Therefore the underlying supply and demand dynamics will favour rising house prices. While higher stamp duty on buy-to-let and second homes, alongside measures to restrict ability to make buy-to-let mortgage interest payments tax deductible could hit certain pockets of the market, we expect overall demand to stay robust.
Mike Wickens, Professor of Economics, Cardiff University and University of York
Unless the government can control immigration the demand for housing — and all public services — will continue to increase.
The housing supply depends on releasing. I am strongly against building on greenfield sites. Once concreted over this will be permanent. The government should release more brown field sites.
The house building industry prefers green field sites as it is cheaper to build there. This must be resisted. In the short term, there is not the capacity in the industry to build a large number of houses.
Neil Williams, Group Chief Economist, Hermes Investment Management
With more cheap cash looking for a home (only a small pun intended!), previous stamp duty changes, and only limited extra housing stock, national house prices should continue to outpace inflation, which they're currently doing at an underlying rate of about 4% YOY using the RPI. Looking back, rising real house prices have generally guaranteed post-War UK growth recoveries, with previous 'false dawns' being associated with real house price falls. The BoE may though need some convincing -a legacy perhaps of Lord King — arguing this is correlation, rather than cause.
Chris Williamson, Chief Economist, Markit
House prices look set to continue to rise in 2016 as demand continues to outstrip supply. Based on recent history, any existing policies to boost housebuilding will no doubt prove largely ineffectual relative to population growth.
Richard Woolhouse, Chief Economist, BBA
Recent announcements on housing supply are material (200,000 starter homes, plans to support 400,000 new homes overall, various help to buy schemes and stamp duty changes for BTL) but will not boost supply sufficiently to address excess demand. Current starts are rising but remain about half of the estimated 300,000 required to make up for excess demand over the past decade. In addition my concern is that skills shortages may constrain the delivery of this modest target.
So whilst the policy is welcome and does address some of the key issues in the market it will probably have a limited impact on the market overall whilst having a greater proportionate impact on the BTL market.
Tony Yates, Professor of Economics, University of Birmingham; Centre for Macroeconomics at the LSE
What I would like is that the Government withdrew all its subsidies to house purchases for first time buyers; and that it embarked on a bond-financed program of housebuilding, taking advantage of currently low interest rates, perhaps even hypothecating the revenues. But I doubt much will change over the course of next year. It's hard to gauge what the counterfactual path of house prices would be. Over one year, maybe not all that much. But over ten years, 30%? 50%
Azad Zangana, Schroders, Senior European Economist & Strategist
Government building initiatives should only have a marginal impact on new supply in 2016, but could have a larger impact in the future. With interest rates remaining low, demand is likely to continue to grow strongly — easily outstripping supply. The increase in stamp duty may have a small impact on demand for second homes and for buy-to-let properties, but in a rising market, those using property as an investment will not worry about such a small additional cost. We expect house prices nationally to rise by 7% in 2016, with risks skewed to the upside.