…or so the saying goes. But how much longer can this continue? Our Retail 2020 research suggests massive changes in the way we’ll shop over the coming years. The needs of office occupiers are going through a seismic shift and the evolution of logistics networks will affect the industrial sector. When reading our latest UK Residential Market Forecasts (August 2010) it struck me that, in the absence of a sizable investment market, these forecasts are chiefly relevant only to home owners in the UK. Which raises the question: could the golden age of home ownership come to an end to mark yet another major structural shift in real estate?
The many drivers of growth in the private rented sector make this look more and more likely. There is a widening group of the population who are not in “sufficient need” to merit social housing but cannot afford to buy or secure mortgage finance. Public sector austerity and the struggling economy mean this group will grow and we cannot expect the government to fill the gap. Interest rates are low but first time buyers do not benefit because lending criteria have tightened. And today’s ultra low base rate will eventually have to rise, pushing up borrowing costs and making it even more difficult to get into the market. The “would be” cohort of new home owners will also be more keen to pay off their student loans than take on more debt even if the banks were supportive, plus I sense that tomorrow’s potential owner occupiers are developing different lifestyles that value flexibility and change and so would be pleased to have alternative tenure opportunities.
Our house prices forecasts show a reversion to average growth of 7% from 2012. Prices need to fall not rise to get the next generation of home owners on the housing ladder. Will all this be sufficient to make residential a recognised institutional asset category for investors? After all, in few other countries is home ownership the obsession that it is in the UK and in an age of austerity more Britons might be more comfortable economically and domestically if they were prepared to ditch their homeowner aspirations. It may need some legislative change to encourage private sector landlords and the industry would need to offer a really attractive alternative, but it’s been done before. In England in the 1700’s even the rich were happy to live in rented accommodation. Perhaps this also presents a new angle for our volume house builders as they struggle with their existing business models!!