11 June 2018

Modest slowing in annual house price growth during May

  • Annual house price growth slowed to 2.4%

  • Prices fell 0.2% month-on-month

  • Shift in housing stock towards private renting and flats

UK annual house price growth slowed modestly in May to 2.4%, from 2.6% in April. House prices fell by 0.2% over the month, after taking account of seasonal factors. Annual house price growth has been confined to a fairly narrow range of c2-3% over the past 12 months, suggesting little change in the balance between demand and supply in the market over that period. There are few signs of an imminent change. Surveyors continue to report subdued levels of new buyer enquiries, while the supply of properties on the market remains more of a trickle than a torrent.

Looking further ahead, much will depend on how broader economic conditions evolve, especially in the labour market, but also with respect to interest rates. Subdued economic activity and ongoing pressure on household budgets is likely to continue to exert a modest drag on housing market activity and house price growth this year, though borrowing costs are likely to remain low. Overall, we continue to expect house prices to rise by around 1% over the course of 2018.

How has the housing stock changed?

Data from the Ministry of Housing, Communities and Local Government shows that, over the last 20 years, the total housing stock in England has increased from 20.6 million to 24 million dwellings, a rise of 16%. There have been significant shifts in the ownership of the stock, which in turn has influenced trends in property type over time.

The most striking shift has been in the proportion of the stock owned by private landlords. While last year’s data showed a small decline in the stock of privately rented dwellings, they still account for 20% of the total stock, double the proportion in 1997. The counterpart of this shift has been a decline in the proportion of owner occupied dwellings (from 68% to 63%) and social landlords (from 22% to 17%).

Dwelling stock by tenure graph

As illustrated in the chart above, the most rapid period of growth in the private rental sector has been over the last 10 years, where the number of privately rented dwellings increased by 50%. Meanwhile over the same period, the number of owner occupied dwellings was broadly unchanged at 15.1 million, while social sector (local authority plus housing association) dwellings increased by 2%.

Property mix - flats up, bungalows down

A number of factors influence the mix of properties that are built over time, such as planning policy and the move to higher density construction in many cities. However, the increase in demand from investors is also likely to have played a role.

Dwelling stock by property type graph

Data from the English Housing Survey provides some interesting insights into how the mix of properties in the housing stock has changed. The most eye-catching development is the increase in the proportion of flats, which are popular with investors (c60% of flats are privately rented versus 18% of other property types in the privately-owned stock). Since 1996, flats have increased from 12.2% to 15.6% of the privately-owned stock.

Flats accounted for a relatively high share of newly constructed dwellings. During the period 2005 to 2008 nearly half of new completions in England were flats. While construction has shifted back towards houses in recent years, flats still accounted for c20% of new units last year, above their share of the stock.

Flats as a percentage of private dwellings completed

It is interesting to note that since 1996, the proportion of rented flats within the stock has increased from 4.9% to 9.2% of private dwellings (equivalent to one million additional units). There has also been a substantial increase in both the number and proportion of privately rented terraced houses, which now represent 8.9% of the stock.

Over the same period, the number of owner occupied terraces has actually fallen, suggesting some of these properties transferred across to the rental sector.

The property type which has become much less prevalent is bungalows, which now make up 8.6% of the stock, down from 10.7% in 1996. This may be unexpected, given demographic trends and the popularity of this type of property amongst older people. A 2014 report found that households where the eldest person was aged 65 or over were six times more likely to live in bungalows than other households (21% compared with 4%), while households with older people were less likely to live in flats (14% compared with 22%).

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About the author

Robert Gardner

Robert Gardner is Nationwide’s Chief Economist, leading a team which provides economic analysis and advice, focused on developments in the UK economy, with particular emphasis on the housing market and house prices.

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