What will happen to housing supply in 2017?

Frank Knight mulls how the economic outlook, mortgage-lending environment, and government policy will affect the demand for new homes in 2017. December 29, 2016 / Isla MacFarlane
What will happen to housing supply in 2017?

Looking ahead, Frank Knight says the risks are weighted towards the downside, not least because of the uncertainty created as the country negotiates its exit from the EU.

“We currently expect economic growth to slow and although we anticipate mortgage rates will remain low, households will face pressure from weaker income growth and higher inflation,” Frank Knight said in a recent report.

The Bank of England base rate is currently 0.25% and mortgage lenders are continuing to lend into the market with an increasing focus on home-owners rather than buy-to-let landlords. “Therefore, in the short-term we expect the economic pressure on households to be, on average, offset by more competitive mortgage lending.

“On that basis, we are forecasting that national house prices will rise by 13% over the next five years, though there will be substantial variance across the country depending on local economic and consumer confidence,” Frank Knight said.


Government subsidy will play a large role in supporting housing delivery, according to Frank Knight. A plethora of funds were announced in the Autumn Statement including a £2.3bn Housing Infrastructure Fund to unlock new housing supply, £2bn Accelerated Construction fund to speed up house building on public sector land and £1.4bn to deliver an additional 40,000 affordable housing starts by 2021. Further details are expected to be revealed in the White Paper.

Home-ownership continues to be the preferred tenure for the majority of people and the private sector housebuilders are by far the most important contributors to overall housing supply. The new homes market may benefit from lower levels of available stock in the second hand market but weaker consumer confidence is a significant risk.

Creating long-term stability is essential for an industry where projects can take many years if not decades from start to finish. Meanwhile, increasing competition and a diverse range of products will help more people to buy a new build home.

However, Frank Knight says that care needs to be taken to ensure these homes are in the most appropriate locations and are of the right type, size and quality.


The location, type and size of new homes has changed considerably since the recession. Development has shifted from high-density flats in northern cities to family homes in the South and Midlands, the report said.

In 2006/07 one and two bed flats accounted for 44% of all private new homes. They now account for just 22% and it would be lower if London were excluded. Meanwhile the proportion of new homes that are houses with three or more bedrooms has risen from 50% to 70%.

These trends indicate that new build homes are not as small as regularly suggested. The average size of a new build home in 2015 was 91m2, just 1m2 smaller than the average second hand home. The problem is the distribution of sizes. We are building lots of small flats and a sizeable number of large houses but not enough average sized homes.

This highlights a potential issue with the Government focus on overall supply levels. Chasing headline numbers at the expense of quality and design risks a return to some of the negative aspects of the pre-recession development market. It also ignores the value that can be created via appropriate place making.

“Therefore, alongside the focus on increasing supply, we also need to ensure that there is sufficient land supply in the places that need new homes the most,” Frank Knight said. “Plans for this land need to have the appropriate mix of homes alongside the required infrastructure, amenities and services.”


The vote to leave the EU in June has added to the uncertainties facing the capital’s housing market. The top-end was already struggling thanks to stamp duty tax reform. While the changes to stamp duty may have reduced the cost of buying a new home for the majority of buyers, the higher effective rates for higher value properties and/or for properties bought via a company have disproportionally affected activity in the London new build market. Housing starts and sales are down 22% since Q4 2015 but have shown some signs of stabilisation in the latest quarter while completions are still increasing.

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