UK Housing Market Supply and Demand Gap Widens

How Do Supply and Demand Affect the Housing Market?

When it comes to supply and demand, the UK housing market provides a great example of how it works.  

The housing market relies on supply and demand as it is considered a transactional market that uses properties. 

In the property industry, when the demand for properties is high and the housing market supply is low, home prices often rise. 

The Land Registry states that the average price of a property in the UK rose by 10.6% year-on-year in August to reach £264,244. 

In England alone, the average house price increased by 7.0% over the year to July 2021, now sitting at £269,945 according to the latest Land Registry data from September 2021. 

So What Key Factors Have Been Affecting Housing Supply and Demand?

Housing Market Basics 

There are several basic economic factors that affect the level of elasticity of demand and supply in the housing market. 

If there are more home buyers and investors wanting to make a purchase and there are limited homes available to buy, this will cause prices to increase.  

Whenever there is a change in property price, it creates a change in demand, pushing elasticity to its highest. 

Incomes of households will have a notable effect on the demand for property. An increase in income may result in higher demand.   

People may invest in bigger properties or buy a second property to rent out, which will cause a shift in the housing market supply and demand curve. 

Another factor can be down to the lack of new homes or limitations on fixing up existing ones to relist on the property market. This is in large part due to the pandemic and lockdown causing delays with the building materials, construction and the renovation process. 

Hopefully, the worst of the pandemic is behind us, so housing stock will likely increase as development and new home construction resumes. 

Stock may also increase as people start to move homes. Families may be looking for larger properties with more space, and others will be securing their first home.  

According to Zoopla’s Head of Research, people are reassessing their homes following the Coronavirus pandemic last year as they change the way they work and live.   

As more people adapt to flexible working routines, there is more leeway to move away from the office. 

Due to the lack of new homes on the market, or perhaps financial circumstances have changed – either way, others might look to rent properties, which is great news for buy to let investors and the rental market.  

Research by Shawbrook Bank found that two-thirds of landlords (67%) said they are positive about their prospects in the next year. 

Low Interest Rates

Lower interest rates on loans from mortgage lenders also affect housing demand as people are more likely to commit to taking on a mortgage. 

Mortgage rates affect price elasticity in housing as more people can afford to take on debt when rates are lower, allowing them to pay a bit more for properties resulting in increased elasticity of demand. 

The reduced loan interest rates have allowed more buyers to enter the housing market, creating more demand.  

As low interest rates remain and there is still a limited supply of housing stock, we could see further rises in house prices in the coming months. 

Stamp Duty Holiday 

During stamp duty holiday deadlines in June and September, housing transactions peaked as buyers rushed to complete to save on tax. 

Data from HM Revenue and Customs (HMRC) shows that 165,720 sales went through in September, up 67% on August’s figure. 

The demand for sales to be processed naturally slowed down the market due to a lack of housing supply. 

Further strain was put on the supply and demand gap as property investors and first-time buyers increased demand levels but had no property to sell. 

Even though tax savings have come to an end for buyers, more sellers may now list their properties for sale, who were previously put off by the frantic activity earlier this year, so we should see supply start to increase. 

Great news for future homeowners who have been waiting for new properties to come to the market!