Bank of England Expects Strong Rebound In UK Real Estate

Unlike the housing collapse of the 1990s that was hampered by excess inventory, limited supply should help bring the UK property market back from the latest crash, as …

Unlike the housing collapse of the 1990s that was hampered by excess inventory, limited supply should help bring the UK property market back from the latest crash, as it did in the ‘80s. The remaining element in this recovery, and the key factor for the immediate future, will be favorable lending conditions in the banking sector. See the following article from Property Wire for more on this.

Residential property prices in the UK will bounce back like they did in the 1980s and avoid a 1990s style meltdown, it is claimed by a Bank of England policymaker.

The property market over the next few years will be supported by a shortage of supply, according to Andrew Sentance, an external member of the interest rate-setting Monetary Policy Committee.

Sentance told an audience at the British Property Federation conference in London that what happens now will be in stark contrast to the situation after the early 1990s crash when an earlier spike in housing investment led to an eventual over supply of homes.

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He said that both the property market and the rest of the economy in the UK were depressed by the ongoing credit crunch and the shocks to consumer and business confidence associated with the financial market turbulence in the autumn of 2008.

‘But the monetary policy and other responses to these shocks have gradually restored confidence, and financial markets have recovered to some extent. As a result, the economy has stabilized and begun to grow again and the housing market has also begun to recover, both in terms of activity and prices,’ he explained.

Looking back on recent property crashes, Sentance noted that housing starts and house prices bounced back much more strongly in the 80s than in the previous decade, reflecting the overhang of surplus properties from the late 1980s housing boom which acted as a dampening factor on the housing market through the first half of the 1990s.

‘Whereas house prices recovered relative to inflation in the early 1980s, the first half of the 1990s saw real house prices continuing to fall before stabilizing around 15% below their level at the start of the recovery,’ he said.

‘In terms of the balance of demand and supply in residential property, most of the evidence suggests that the current position is closer to the early 1980s situation than the early 1990s

There was no big spike in housing investment in the mid-2000s, and house builders were quick to cut back on activity,’ he added.

In the short term he believes that problems in the banking system will hold down demand and he rejected the ‘commonly held notion’ that housing activity was driving the British economy.

‘If the pressures in the banking system ease over the next couple of years, there could be scope for a much stronger recovery in the housing market, especially if interest rates remain low and monetary conditions remain as relaxed as they are at present,’ he told the conference.

This article has been republished from Property Wire. You can also view this article at
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