Property Through a Pandemic

Henry Blatchford (CO L6)

It goes without saying that the previous year has been somewhat abnormal. Not only has it proved a test of governmental organisation (or lack of it, depending on your view!) but also of the country’s resilience as a whole. Last year saw myriad striking events, including the price of oil going negative, a non-English language film winning the Oscar for Best Picture, and after much talk, Brexit finally happening. Indeed, 2020 has caused a great deal of disruption, and none more so than instability within markets – and particularly from this article’s outlook: Property.

The year started normally but plunged when coronavirus ground everything to a halt because of the national lockdown. Interest in purchasing property and the physical restrictions on doing so were conducive to a 77% drop in property sales between the first and third week in March, with sales in London falling by up to 90%.1 A significant factor was that the furlough scheme entailed a squeezed income for 8.86 million jobholders as of 8th May.2 As a result of this, many prospective buyers’ purchases were stalled and the so the infamous property chain was stymied. However, whilst the Nationwide house price index showed a 1.7% decrease in May from the previous month – the largest decline in 11 years – Professor Nori Gerado Lietz of Harvard Business School cited the still-rising house prices across the pond in the United States.3 A key facet of the housing market is that some people use the value of their homes as security for a loan (not just in the form of a mortgage), and if house prices decrease even more, this could lead to some loans being terminated and property being seized by creditors.

After the first lockdown, restrictions started to ease, and allowed estate agents to start connecting buyer and seller. This was coupled with a mass revaluation from the general public of what they valued in their homes. A rise in assets such as an office, a garden, and open access to the countryside or coast took hold in online searches as Graham Norwood points out: ‘searches by renters looking for a garden are almost double compared to the first week of lockdown’.4 However, if people look for more rural houses attempting to work from home, it is possible that the demand for office space may diminish. Therefore, the market for offices will have to adapt, which Professor White believes the industry is accomplished in doing. After allowing for inflation, he says ‘average rents in London are the same as they were 100 years ago’.5 He points to the office property market as having effectively matched supply and demand for a long period of time already. Furthermore, Chancellor Rishi Sunak unveiled his Stamp Duty holiday effectively waiving taxes for prospective homeowning buyers until 31st March 2021. This will have cost the government an estimated £12 billion, according to Statista. Because of the tax holiday, however, people were expected and even encouraged to pursue plans for moving house, buying and selling in a bid to get the economy moving out of a recession. What a convenient way to cajole large lump sums of money to move around the economy!

So, with 2020 now behind us, what is in store for 2021? It is a common outcry from politicians and the public alike that the UK does not have enough housing – let alone affordable housing. This calls into question whether the government can actually continue committing to its target of building 300,000 homes a year by the mid-2020s. It is estimated that in a worst-case scenario, the UK could lose out on 318,000 homes by 2025, with 21% of those being affordable.6

Moving on to 2021 as a whole though, it is shaping up to be a year of three parts.7 The first incorporates a desire to beat the stamp duty holiday which should sustain activity in the property market for the first quarter. The second wave will see the end of the tax holiday coincide with increasing unemployment as the furlough scheme ends. This is likely to slow demand and possibly lead to price volatility during the main part of the year. Thus people’s desire to move will be thwarted by their financial inability to do so. For the third part, vaccine rollout will cause unemployment rates to fall as the country begins its return to normal – and with it, a rise in consumer confidence.

In summary, property will always be a good investment for two reasons. Property provides security and a good return in the long run. ‘So if Government bonds are paying 0.5% interest a year, or even less, and property is making 3–5%, you still have a good source of income . . .8 ‘ The second is that the use for land can change – as

evident in London’s office sector in the past century. Your surrounding built environment will also demonstrate this, ‘shops that are now flats, old factories that are now hotels, and warehouses that have become dance studios.’9 Despite coronavirus’s massive shock for the property markets, it may well just speed up changes that were already occurring.10 And besides this, according to Savills’ UK Housing Market report, house prices increased by 7.3% in 2020 – the highest for six years. So 2020, for the property sector at least, was not as bad as we thought after all.

Notes: 1 J. Van Deursen, Covid-19 Begins To Impact Property Market (Today’s Conveyancer, 24th March 2020) 2 D. Clark, Cumulative number of jobs furloughed under the job retention scheme in the UK 2020 (Statista.com, 5th January 2021) 3 J. Bloom, Coronavirus may have huge impact on property markets (BBC, 11th June 2020) 4 G. Norwood, Guess what? Searches for homes with gardens are up, says Rightmove (LettingAgentTODAY.co.uk, 24th April 2020) 5 J. Bloom, Coronavirus may have huge impact on property markets (BBC, 11th June 2020) 6 Savills’ blog, What impact will Covid-19 have on future housing supply in England? (Savills.com, 29th June 2020) 7 L. Cook, UK housing market outlook 2021: a year of three parts (Savills.com, 8th January 2021) 8 J. Bloom, Coronavirus may have huge impact on property markets (BBC, 11th June 2020) 9 ibid 10 ibid

June 2020 by Mr E.F.J. Twohig