The foundations of the British housing market have so far failed to crack under the economic strain of coronavirus. Vivid memories of the great recession where real house prices crumbled by nearly 20% meant the sector was braced for the worst as Covid 19 started to shake the world’s economies. However, whilst the country sank into its deepest recession on record and with other markets collapsing, the property sector was remarkable in its resistance. The statistics behind this are striking. September saw annual growth in UK property prices climb to 7.3% and sales up 78% as buyers rushed to get in on the action. Whilst the causes of this ‘mini-boom’ can be explained, its consequences remain far more of a mystery.
Previous recessions have generally triggered a significant fall in house prices due to the large numbers of forced sellers hit hard by job and income losses. This year is different; a vast fiscal stimulus package has cushioned the blow to households and averted a flood of sales. Measures such as the furlough scheme, mortgage holidays and bounce back loans have maintained income, guaranteed jobs and helped prevent foreclosures. These steps mean that most households have not seen a significant fall in income and therefore haven’t been forced to sell off valuable assets such as their house to replace such a reduction.
Not only has the government’s support scheme avoided an extensive sell off in property but lockdown also increased household savings, with 10% of adults putting money away specifically with the intention of buying a house or getting a deposit. The reopening of the market in June saw a huge rush of activity, with pent up demand, extra savings and the cutting of stamp duty driving the frenzy. Many potential buyers leapt to push through the estimated 373,000 deals that were suspended under lockdown, kickstarting the industry with a surge of momentum. The raising of nil-rate stamp duty to £500,000 further fuelled the boom as it spurred those on the fence to purchase before next year. But perhaps the most defining factor in continuing and growing this trend is how we have all reassessed our priorities during lockdown.
There is no doubt we have seen a striking change in consumer preferences, with 46% of the labour force working from home this April an increased emphasis has been placed on space to work from, a garden and the local community. This trend looks set to continue as 88% of employees would like to carry on working from home in some capacity after the pandemic. As people’s need to commute reduces, the importance of residential-workplace proximity declines, leaving more freedom in people’s choice of location. This shift is already evident in the increased demand for larger 4-5 bedroom houses with outdoor space. Here, buyer’s budgets can stretch further than in more expensive suburbs and commuter belts.
Though it remains to be seen how dramatic any city exodus will be, most of those leaving are involved in professional white-collar jobs. The strong correlation between higher wages and an increased likelihood to work from home means that wealthier households are driving this move out of the city. On top of this, recent studies over lockdown have suggested that working from home is not detrimental to productivity which is likely to slow any reversal of this change when things return to normal.
Any significant population movement is unlikely, however, and shifts will be mainly compositional. A shortage of attractive non-urban housing and unreliable supply make it impractical to relocate large numbers out of the cities. Instead, most of these home movers are buying for the second, third or fourth time, often taking out mortgages for larger houses due to the low interest rates. This could leave larger cities emptier, cleaner and less economically valuable as activity shifts to the smaller cities and towns.
The consequences of this relocation could well reinforce existing patterns of segregation as wealthier households group together in certain neighbourhoods. These more affluent areas will see inflated prices due to the higher demand, evicting less-wealthy residents who will subsequently congregate in poorer regions. This reduction in diversity of wealth decreases interaction between different social groups which weakens social mobility and underlines an inflexible class structure.
With the UK returning to a national lockdown, continued measures are likely to increase this shift’s impact. Behaviour changes such as virtual meetings or the absence of a commute will start to cement, and cities will struggle to adapt their outdated systems and infrastructure to the new regulations. Even if life soon returns to normal, people are likely to be more fearful of future pandemics and many firms will realise that they can organise work differently. Both these factors will discourage people from city living and crucially their effect will compound the longer restrictions last.
Wide-scale change is often only caused by extreme events such as Covid 19. Nothing in the 21st century has required such drastic measures and we are only beginning to see the long-term effects on all areas of society. However, whilst it is easy to exaggerate the consequences to the housing market, humans are naturally resistant to change and we often underestimate cities’ ability to adapt. In the event an effective vaccine is rolled out in spring, it is likely people will swiftly revert to old habits and practices with many changes never materialising. In the meantime however, we are facing a long, cold winter which could result in more job losses, forced sales and wary buyers; it is only a matter of time before the hot air filling the balloon runs out and the true consequence can really be felt.