Investors: The House Price Rise in the UK Has No Price

After some difficult years, the housing market in the United Kingdom is now heading in one direction: up! What most certainly will constitute a problem for median incomes in the UK and create macro-economic instability in the long run may be a golden opportunity for international investors in the short and medium run. The Royal Institution of Chartered Surveyors (RICS) forecasts that the average UK house price will rise by around 6% a year for the next 5 years. This could push prices up to 35% by 2020. For RICS the main driver for this market trend is the short supply of decent homes in the UK market.

Mark Carney, Bank of England governor expressed his concerns about the booming housing market during an interview with Sky News on May 19th 2014. In that interview he viewed the development of the British housing market as the “biggest risk” to the economic recovery of Britain. Like RICS Mr. Carney sees the short supply of houses as the main driver for the climbing prices: “The issues around the housing market in the UK … is there are not sufficient houses built in the UK,” he said. “[There are] half as many people in Canada as in the UK, [but] twice as many houses are built in Canada every year than in UK.”

A columnist for The Guardian, Simon Jenkins, finds that the rise in price seems to be found rather in the demand of “most people [who] would like a nicer house” rather than in the need for new housing.  He further argues that housing for British is intended as “an investment, a hedge against inflation and old age, a golden gate to otherwise impossible wealth. It is this that drives middle-income families into a frenzy, and has pushed up house prices in the south-east by some 9% [in 2013]”.

Regardless of the main driver behind the recent developments in the British housing market, a real housing deficit or a frenzy of middle-income families, it is very probable that the average housing prices will increase substantially over the next few years. It is not far-fetched to see a bubble in this development. Mr. Carney’s warning of rising prices due to a lack in supply may be a strategy to deviate the attention from Bank of England’s low-interest policies since the financial crisis. Nevertheless the British market might be highly interesting for institutional and individual liquid investors looking for short and medium term investments in real estate. The price and the timing might just be right to jump into the race.