When The Storm Clears: Coronavirus And The UK Housing Market
It was all looking so positive post-brexit wasn’t it? Months of uncertainty coming to an end and the ‘Boris-Bounce’ poised for lift-off. Then along came coronavirus and the brakes are back on.
The property market has taken a monumental thumping by COVID-19’s formidable right hand.
It’s been momentarily stunned and has it’s back against the ropes.
The short-term ramifications of the global virus certainly don’t look great, but what about the long-term outlook? After-all, economics and investing is all about the long-game and should never be defined by short-term thinking.
The housing market has lost round one, but how do we see rounds two to twelve panning out?
We’re optimistic and positive and here’s why…
Supply and demand
The government set out a very clear target of building 300,000 homes each year by the end of the decade. Last year we only managed to build 180,000 and it will be no surprise to you that this year will be even fewer.
There is no doubt that there is demand and this demand is outstripping supply which can only mean one thing, house prices will eventually be pushed upwards.
Construction costs are crumbling
Construction companies will be fighting tooth and nail to get hold of work in the current climate and some have even been slashing their prices by up to 25%.
This is very interesting because If the gross development value (GDV) of the property takes a hit of let’s say 15%, but the developers are saving 25% on costs, then they’re probably still reaching the same levels of profitability.
Not bad, huh?
Well, when the economy begins to find its feet and house prices begin to get back on track and developers have already locked-in significantly reduced costs we expect to see confidence return to the peer-to-peer development loan sector.
Worst case scenario
It’s very easy to forget that all this negative forecasting is based on the current situation where we don’t yet have a vaccine. Nobody can see the wood from the trees. As soon as we find a vaccine, an accurate antibody test or treatment method, the mist will clear, and the entire outlook will change very quickly.
A socialist state?
Recently, Rishi Sunak announced a further £9 billion to support the self-employed. This is on top of an already colossal government aid package to safeguard the economy during this extraordinary crisis.
Government spending is through the roof and monetary and fiscal policies are loose. You could almost say we’re living in a socialist state right now.
We now also have over 2 trillion dollars of stimulus floating around the global currency supply after President Trump announced their own rescue package to combat the virus.
It’s not unreasonable to suggest – with all this extra cash flying around the place – that we’re on the road to inflation and ultimately inflated house prices. We may also see this loose economic policy and high government spending continue for the foreseeable future to further re-inflate the economy. Perhaps resulting in the development of some monumental infrastructure projects to create and sustain employment.
Solid as a rock
The government is doing absolutely everything it can to keep people employed and businesses afloat while the tide of the virus is high. For this reason, can you honestly expect people to lower their house price? Would you not just sit tight for the time being if you’re still getting paid? Moreover, there does not seem to be any evidence of reduced sales prices out there right now.
A pressure pot of lenders
All this uncertainty surrounding coronavirus and its economic impact has meant that there’s a huge number of development finance lenders sitting twiddling their thumbs. That’s a lot of money that’s being held back from property-backed investment projects. When all this pent-up pressure gets released and all these lenders flood back into the market at once, then it’s going to become incredibly competitive, and could result in some crazy offers for developers.
So there you have it. There are plenty of things to feel optimistic and positive about in the coming months. It’s very easy to adopt a negative mindset during these uncertain times, but as investors in property development lending and peer-to-peer loans there are many factors we should all feel encouraged by!