Home.co.uk
Home.co.uk

News: Homes timebomb forecast sees prices rise 50%

The average house price in England will rise by more than 50% to top £300,000 within six years, according to econometric forecasts made by Oxford Economic Forecasting for the National Housing Federation.

The federation, representing 1,400 housing associations, warned that it was part of a ‘housing timebomb’ that only drastic government action can alleviate.

The report from Oxford Economic Forecasting said:

  • Average house prices will increase by 5.1% between 2005 and 2006, but will increase faster than 7% a year from 2008-2011.
  • Housing inflation will outpace growth in earnings and disposable incomes for every year to 2011. Earnings are forecast to grow by 4.1-4.4% a year over the next five years.
  • While issues around housing affordability and supply will constrain house price inflation for 2006 and 2007, stronger economic growth will push prices up more quickly from then on.
  • Interest rates are likely to average 4.5% for the entire five-year period to 2011.
  • Current spare capacity means the economy can grow more quickly without necessarily triggering interest rate rises.

Oxford Economic Forecasting are an independent group whose housing market model is being used by the government to work out the policy implications of Kate Barker's review of housing supply.

However, the group’s forecast goes against other housing market predictions. The Halifax and Nationwide have both said that house price growth will be modest over the medium term, while research group Capital Economics has said that it expects prices to fall later in 2006.

Impact

The National Housing Federation said a continuing and quickening house price inflation will price even more people out of the housing market, thwarting people's personal aspirations and limiting job and home choices.

The federation said: "The research spells disaster for tomorrow's first time buyers who will find it increasingly difficult to afford a place of their own."

"It is no longer only those on lower incomes who are in difficulty. This is a national problem that needs a national solution."

More housing inflation will increase the reliance on investors to sustain the market and lead to even greater strains on a shrinking affordable housing sector stock.

"In short," said the federation, "unless there is an economic shock or drastic intervention from the government, the timebomb in England's housing economy will tick ever louder over the next five years."

Alleviation

The government can take credit from its decisions to improve investment in housing over recent years and for beginning to tackle the practical difficulties created by the current planning system. But the figures make it clear that much more needs to be done, said the federation. Specifically the federation believes housing associations have a big role to play.

"Housing associations are currently building 28,500 new affordable homes a year and refurbishing 10,500," it said. "But up to 80,000 new affordable homes a year are needed to stop our housing timebomb exploding. We are calling for increased government funding for housing associations to deliver the homes we need."

The federation also calls for changes in the planning system to make delivery of affordable homes in mixed communities easier.

Back to: News Index