Buy homes during downturns, research suggests
The supply of residential properties in the United Kingdom is unlikely to be enough to the point of making it more affordable for young adults, reported The Telegraph, citing a research presented at the 2017 Royal Economic Society Annual Conference held in 10-12 April 2017.
The general trend is for home price growth to continue to exceed the gains in income, noted the study’s authors – economists from the University of Reading, Yehui Wang, Geoffrey Meen and Alexander Mihailov.
Based on data from the Office for National Statistics, the average residential prices in the country now stands at £217,500 (S$380,688), which is 7.7 times the average full-time income of £28,200 (S$49,358). But in 2005, the average price for a home was only £150,500, about 6.5 times of the £22,888 average salary back then.
While the authorities are looking to increase the supply of residential properties — with former Bank of England policymaker Kate Barker estimating that an additional 60,000 units are needed per annum on top of those already under construction — this would not significantly reduce prices or prevent it from spiralling further due to the minimal scale.
“The increases in housing supply required to improve affordability have to be very large and long-lasting; the step change would need to be much larger than has ever been experienced before on a permanent basis,” explained the economists.
Their research also noted that building more homes would have a limited impact on prices. “The required increase in supply to stabilise the price to income ratio is not feasible – permanent increases in construction would be required that have never been achieved in history.”
Nevertheless, they pointed out that home prices decline sharply during periodic downturns, creating windows of opportunities for home buyers.
“Price to income ratios are likely to stabilise even without major increases in supply, although adjustment could take the form of an undesirable market collapse,” added the research.
While this could hurt existing homeowners, this could help those stepping onto the property ladder for the first time.
Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories, email romesh@propertyguru.com.sg
