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RESIDENTIAL MARKET
COMMENTARYNovember 2019
A Cushman & Wakefield Insight Publication
1Cushman & Wakefield | Residential Research
ECONOMIC OVERVIEW
Economic Overview
ECONOMIC INDICATORS 2019 2020 2021 2022 2023
GDP growth (%) 1.3 1.1 2.0 2.0 1.8
Real Household Disposable
Income – PEDY (%)1.4 1.1 2.0 1.5 1.5
CPI Inflation (%) 1.8 1.4 1.5 1.8 2.0
Exchange Rate (US$ per £) 1.27 1.33 1.37 1.39 1.41
Exchange Rate (Euro per £) 1.14 1.21 1.21 1.20 1.18
BoE Interest rate (%) 0.75 0.75 1.00 1.25 1.50
Source: ONS / Oxford Economics / OBR
With all Brexit scenarios currently still on the
table (at time of writing), the future of the UK
economy remains unclear, with recent data
continuing to be skewed by behavioural
reactions. Latest Brexit probabilities from
Capital Economics are as follows:
• Delay – 45%
• Deal – 35%
• No deal – 15%
• Remain – 5%
Adding weak global growth to this has lead
Oxford Economics to revise-down their 2020
UK GDP forecasts to just 1.1%.
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
CPI Inflation & Average Earnings (y-on-y change)
Average Earnings (exc bonuses) CPI Inflation
This potential subdued outlook for the UK’s economy has lead to an increasingly dovish tone coming from the
Band of England’s Monetary Policy Committee (MPC), with a strong chance that central interest rates would
be swiftly cut in the event of a no deal Brexit. Even in the event of an orderly Brexit, most forecasters are
predicting just annual 25bp rises per year from 2021.
-0.3%
-0.2%
-0.1%
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
2018Q4
2019Q1
2019Q2
2019Q3 (f)
2019Q4 (f)
2020Q1 (f)
2020Q2 (f)
GDP – Q-on-Q growth
2Cushman & Wakefield | Residential Research
National Market
PRICES
Sources: UK HPI
From a pricing perspective, the English housing market continues to show signs of relative strength with a
majority (70%) of Local Authorities recording price increases in the latest data from the UK HPI. While very
limited transactional activity, and the seasonal elements of the market, may be masking elements of reality,
this strength in such uncertain times will be a comfort to many. Average English home values have risen
3.3% in the five months (to Aug 2019) from March 2019, with prices breeching £¼m for the first time in
history.
TRANSACTIONS
Whilst the aforementioned uncertainty has not fed through into English house prices, it certainly has in a
transactional sense with buyers/sellers willingness to transact in this market considerably lower. As
highlighted below, sales levels in 2019 have been noticeably lower than even the historically low last two
years, struggling to exceed 60,000 sales in each of the months this year. While the lagged summer data may
show some seasonal increase in these volumes, we still anticipate future data releases to be considerably
down on preceding years. Looking a little further ahead, there is little to suggest that the end of 2019 will
bring anything but an even further fall in transactional activity as the compounding forces of a general
election, Brexit, and the historically slow November/December market align to create a perfect storm of
inactivity.
£220,000
£225,000
£230,000
£235,000
£240,000
£245,000
£250,000
£255,000
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Monthly Price Changes – English Local Authorities
Percentage of LA's recording rising m-m prices Percentage of LA's recording falling m-m prices2 English Average House Price
50,000
55,000
60,000
65,000
70,000
75,000
80,000
85,000
90,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
English Housing Transactions
2017 2018 2019
3Cushman & Wakefield | Residential Research
National Market (cont)
Sources: IPHRP / MHCLG
NEW HOMES
As highlighted in the below graph, recent new home completion levels have returned to pre-global financial
crisis levels with the rolling 12 months completion levels in England exceeding 170,000 in Q2 2019. However,
latest data on housing starts does seem to suggest some cooling in activity in recent months, with this rolling
completion figure likely to drop back down to around the 150,000 figure (p/a) in the latter part of the year.
When focusing on core English cities only, there appears to be no end to major under-supply issues. While
there may be some near-term volatility in new home pricing, the chronic underlying supply/demand imbalance
remains. Of the core English cities, only Leeds, Liverpool and Newcastle kept pace with demand in H1 2019,
and while it may seem that we are in the midst of a residential building boom in the Capital, in H1 2019,
Liverpool, Manchester and Newcastle all produced more new homes relative to their size. At the other end of
the scale was Birmingham, where new home completions during the first half of this year represented just
0.1% of the existing housing stock, far below our projected half yearly target of 0.5% (by this measure).
RENTAL MARKETS
In rental markets, London continues to be the notable outlier in terms of recent vs. historical performance.
However, more current data from prime markets in the capital, suggests that a shortage of stock, along with
stable demand has led to upward pressure on prices growing. We would expect this to feed through to
Greater London data in the late 2019/early 2020 data releases. At present, the South West is the only
English region to be experiencing +2% annual rates of rental growth, providing some good news to stretched
renters who should be experiencing some real income growth due to wage inflation outstripping both rental,
and Consumer Price Index (CPI) inflation for a sustained period.
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Q1
, 1978
Q4
, 1978
Q3
, 1979
Q2
, 1980
Q1
, 1981
Q4
, 1981
Q3
, 1982
Q2
, 1983
Q1
, 1984
Q4
, 1984
Q3
, 1985
Q2
, 1986
Q1
, 1987
Q4
, 1987
Q3
, 1988
Q2
, 1989
Q1
, 1990
Q4
, 1990
Q3
, 1991
Q2
, 1992
Q1
, 1993
Q4
, 1993
Q3
, 1994
Q2
, 1995
Q1
, 1996
Q4
, 1996
Q3
, 1997
Q2
, 1998
Q1
, 1999
Q4
, 1999
Q3
, 2000
Q2
, 2001
Q1
, 2002
Q4
, 2002
Q3
, 2003
Q2
, 2004
Q1
, 2005
Q4
, 2005
Q3
, 2006
Q2
, 2007
Q1
, 2008
Q4
, 2008
Q3
, 2009
Q2
, 2010
Q1
, 2011
Q4
, 2011
Q3
, 2012
Q2
, 2013
Q1
, 2014
Q4
, 2014
Q3
, 2015
Q2
, 2016
Q1
, 2017
Q4
, 2017
Q3
, 2018
Q2
, 2019
English New Home Completions (& starts)
Completions Starts
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
London South East East Midlands East South West West Midlands Yorkshire andThe Humber
North West North East
Annual Private Rental Inflation Rates
12m to Sept 2019 10 y average
4Cushman & Wakefield | Residential Research
PRIME CENTRAL LONDON (PCL)
Late summer/autumn has witnessed stability come to
property values in Prime Central London (PCL), with
prices remaining largely flat for third consecutive month.
Transactions took somewhat of a tumble from the
previous month though, no doubt as a result of what was
supposed to be the UK’s exit from the European Union
being at the end of the month.
In rental markets, prices continued to rise as a result of a
severe lack of supply, and are currently 3.3% above
where they were 12 months previously. However, a
notable opening-up of the discount-to-asking figure
suggest rental inflation in PCL may cool towards the end
of 2019.
Prime London Markets
Source: Cushman & Wakefield Research / LonRes
Area definitions for report: PCL = W1H, W1U, W1G, W1B, W1S, W1C, W1K, W1J, SW1A, SW1Y, SW1P, SW1H, SW1E, SW1W, SW1X, SW7, SW3, W8. OPL = NW3, NW8, W2, W9, W11, W14, SW6, SW10.
OUTER PRIME LONDON (OPL)
Unlike PCL, average achieved £ per square foot values in
Outer Prime London (OPL) took a bit of a downward turn
in October, albeit only a minor one. However, with
average discount-to-asking levels dropping below 5%
during the months, we would expect prices to remain
stable in the latter part of the year.
Prices continued to rise in the OPL rental market, and
now stand a considerable 4.6% above where they were a
year previously. And while (like PCL) the average
discount opened-up a reasonably amount, this may just
be a seasonal trend as year-on-year, this figure actually
decreased.
IndicatorM-on-M
(Sep-Oct)
Y-on-Y
(Oct-Oct)
Sales
Transactions-22% +1%
Capital Values +0.07% -6.92%
Average sale
discount %-1bps (6.44%) -22bps
Rental Prices +0.50% +3.29%
Average rent
discount %+36bps (2.54%) -32bps
IndicatorM-on-M
(Sep-Oct)
Y-on-Y
(Oct-Oct)
Sales
Transactions-10% +9%
Capital Values -0.38% -4.25%
Average sale
discount %-10bps (4.99%) -19bps
Rental Prices +0.51% +4.57%
Average rent
discount %+57bps (1.97%) -17bps
90.00
92.00
94.00
96.00
98.00
100.00
102.00
104.00
106.00
Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19
Cushman & Wakefield Prime London Markets Index(October 2018 = 100.00)
PCL Cap Values PCL Rents OPL Cap Values OPL Rents
5Cushman & Wakefield | Residential Research
Mortgage Market
Sources: MHCLG / UK Finance
HELP-TO-BUY ACTIVITY
Latest data from the Ministry of Housing, Communities & Local Government (MHCLG) suggests we may have
reached peak Help-To-Buy. Q1 2019 data revealed no growth in activity from Q1 2018, with 10,375 loans
issued during the first three months of the year. The previous two Q1’s (2017 & 2018) had witnessed 20%+
increases in activity on the preceding years. However, even if there is no increase in activity during the year,
the government will still be on course to lend £3.5bn during 2019, bring the overall total since the schemes
introduction in April 2013 to £15.2bn, helping to fund property purchases totalling £70bn.
BUY-TO-LET
After almost 1½ years of falling numbers, activity in Buy-To-Let investor lending markets is showing some
signs of recovery in 2019, with the number of loans issued for property purchase growing throughout the year
(albeit from relatively low levels). While most data points to a net negative landlord flows out of the sector,
this minor uplift in new entrants suggests that a number of these properties are being traded from investor-to-
investor. The combination of generally stagnant house prices, with stronger rental growth may also be
enticing new entrants through the rare recent occurrence of increasing initial rental yields.
0
10,000
20,000
30,000
40,000
50,000
60,000
Start of the year Q1 Q2 Q3 Q4
Cumulative Annual Number of Help-To-Buy Equity Loans issued
2013 2014 2015 2016 2017 2018 2019
4,500
5,000
5,500
6,000
6,500
7,000
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
UK Buy-To-Let Lending (year-on-year % change)
Year-on-year change (LHS) Number of loans issued for house purchase (RHS)
6Cushman & Wakefield | Residential Research
Matthew Duncombe
Partner
Valuation & Advisory
020 7152 5262
Jodie Jeffrey
Partner
Valuation & Advisory
020 7152 5261
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circulation group.
Author
Lee Layton
Associate Director
Residential Research
020 3296 4574
Contacts
Jonathan Stickells
Partner
Valuation & Advisory
020 7152 5271
Nick Jacks
Partner
Valuation & Advisory
020 7152 5264
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Disclaimer
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