As I cast my eye out of the train window over on a cold and snow dusted but sunny landscape, I gather my early morning thoughts on the 2023 property market. It’s a peculiar feeling.
On the one hand I’ve seen several recessions over the last thirty-five years so I fear the worst. On the other hand my instinct tells me this will be one of those hallowed soft landings that the economists on Bloomberg frequently refer to – which I’ve never seen! Hmmm! Perhaps it’s time to looks at the facts.
Supply v Demand
Let’s start with the fundamentals. Everyone in development knows that demand (both market and need driven) exceeds supply. It seems like it always has done and always will do. It is these fundamentals which ensure the steady and substantial uptick in values during any 10 year business cycle. So, what will happen to supply and demand in 2023 in particular?
On the supply side we have already seen some volume house builders (VHBs) abandon committed land buying. They are retrenching and restructuring – bringing overheads down with redundancies and mergers. Housing production has also been adjusted downwards (since last summer actually) with sub-contractors being laid off and housing completions for 2023 being scaled down. Coupled with this the planning changes being shoehorned into the Levelling Up bill will ultimately result in a reduced number of planning consents – not in 2023 but beyond. Some housing associations however, nervous of the market and absorbing the impact of the rent cap, are likely to tailor their development programmes back– mistakenly IMO! Why? Because land buying should be easier, construction costs should peak out and they have the advantage of swapping out tenures skewed to rent to avoid the sales market curved ball (if it occurs) which the VHBs don’t! Nevertheless, the basic point is 2023 will see a reduction in actual homes being built and/or planned for and therefore less supply for this year and next.
Now on to the demand side. Well, the economy is on a knife-edge. Will it enter a technical recession? Does that matter? The main issue is, will there be mass unemployment? This is what takes substantial demand out of the housing market. If anything, the Government is trying to bring people into the workforce with appeals to the economically inactive over 50’s – early retirees. Employment is at historic highs and anecdotally businesses seem to be struggling to attract the right type of employees. Sure, higher mortgage interest rates, higher tax rates and a higher cost of living will affect housing buying but these effects will be offset by falling inflation and higher wage settlements in the months ahead. So, there will be some additional hardship to bear for some households (leading to a greater need for affordable homes) but overall, this is likely to be a pinch not a squeeze for most. The demand for housing is likely to remain strong in 2023 – all be it subdued compared with an effervescent 2022.
Assuming the above plays out house prices should maintain themselves for 2023 in general terms – with supply adjusting to reduced demand. Indeed, Rightmove reported just yesterday (16.01.23) that prices had risen 0.2% and 0.9% in London and nationwide respectively. For developers looking to invest, house price variations in 2023 isn’t that much of an issue. One Development Director of an RP told us last week that even if values dropped 5% in 2023 they wouldn’t be worried as by the time the development would be finished and plots released in 2025 then prices will have come back up.
Well, I think the first thing to accept is that it will take longer for a property to sell in 2023 compared with 2022. Some of the VHBs have recently reported quite drastic drops in weekly sales rates for the end of 2022. This is to be expected when you consider we had three PMs, three (or was it four? – lost count) Chancellors and the Kwasikazi statement leading to all out economic turmoil with more doom and gloom forecast – it’s no wonder many buyers just froze! All that is gone now, so confidence and herd sentiment should return.
As I look at the photo that accompanies this blog (taken on my journey) I have to decide whether 2023 is going to go through a cold harsh winter or whether there are blue skies ahead. I look down at my Starbucks and it’s still half full – and that reflects how I feel for 2023. Sales rates will recover from the end of 2022 and sales values will be steady during 2023 (south of Birmingham) . That’s my feeling.
Land & New Business Director