Explore the remarkable 20% increase in UK new-build housing prices, reflecting a broader trend seen in Spain’s booming real estate market.
The price of new-build housing is not just soaring in Spain; it seems the United Kingdom is also experiencing a rather astonishing 20% surge in just a few months.
To break it down, new construction prices in the UK jumped by 20.5% from March to July, leaving analysts at Capital Economics scratching their heads, suggesting there might be a “statistical mirage” at play. The outlook for potential buyers is anything but rosy.
In Spain, the dream of homeownership is becoming increasingly elusive. Once upon a time, purchasing off-plan was considered a savvy financial move, a way to secure a brand-new abode. However, in this post-pandemic reality, the landscape has shifted dramatically. The combination of scant supply, skyrocketing material and energy costs—thanks to the ongoing conflict in Ukraine—and a labor shortage has sent prices soaring, eclipsing even the already inflated costs of second-hand homes.
This trend isn’t confined to Spain alone. Across the English Channel, the UK is witnessing a staggering rise in new-build housing prices. Recent data from the Office for National Statistics (ONS) revealed a jaw-dropping 20.5% increase in new-build prices from March to July, with the average price now sitting at £424,600. In stark contrast, the prices of existing homes crept up by a mere 3.3% during the same period, reaching £283,800.
In a recent report, analysts at Capital Economics sought to unravel this perplexing phenomenon. They pointed out that the initial figures reported a 15.7% year-on-year increase in new construction prices for July 2023, only to be revised down to a more modest 4.9%. Meanwhile, the adjustments to existing home prices were so minuscule they barely registered.
Digging deeper, the analysts noted that the inflation of construction material prices has stabilized around zero since August 2023, and wage growth for construction workers has not been particularly remarkable. The 5.6% wage increase recorded in September is hardly a cause for alarm compared to historical trends.
Capital Economics anticipates that the premium for new construction will eventually diminish. While lower mortgage rates may entice some buyers, demand remains tepid, especially following the conclusion of the Help to Buy scheme in March 2023. However, an increase in housing starts and completions is on the horizon, which should alleviate some of the pressure on new-build prices relative to existing homes.
Despite these projections, the overall sentiment among industry experts remains cautious. The persistent challenges of elevated material costs, rising interest rates, and increased wage expenses continue to loom large. Many builders are finding themselves in a tight spot, needing to ensure profitability while grappling with the realities of a sluggish planning system that hampers their ability to bring new homes to market.
Interestingly, a study by the Bank of England (BoE) in 2019 highlighted that a significant portion of the 170% increase in real house prices from 1985 to 2018 can be attributed to falling real interest rates and rising incomes. The prospect of further easing by the BoE, following a period of elevated interest rates, adds another layer of complexity to the situation.
While the housing market is undoubtedly in a state of flux, the interplay of supply, demand, and economic factors continues to shape the landscape. As the industry navigates these turbulent waters, aspiring homeowners may find themselves caught in a waiting game, hoping for a more favorable turn of events in the not-so-distant future.
