Being in this industry for 14 years, I have heard many clients ask, or certainly fear, that house prices might crash at some point. So, they either delay any action or end up not buying at all, only to often find themselves missing the boat, once prices have in fact increased even further.  

As 2021 draws to a close, we’ve seen a very interesting year, where house prices have once again boomed, even in the wake of a global pandemic and in a post-Brexit environment, both of which many people would have predicted some house price adjustment. You might then ask, why do house prices keep going up?! Well, it’s certainly an interesting topic, which we will now explore further…

The Office of National Statistics have been measuring house prices since 1968, but let’s have a look back to 1991, when the UK House Price Index (HPI) first started. Notably, there have only been 2 significant points in these last 30 or so years, where house prices have fallen significantly. This was during the recessions in 1991-1993 and then again in 2008 until 2009, this ignores minor adjustments in 1995 and 2011 (a year- on-year drop of somewhere between 0.29% and 2.29% respectively).

After a booming year for house prices post-COVID, house prices are going to crash next year because they are too expensive and simply must come down, right? Well, unless there is a significant recession ahead, then history tells us it’s very unlikely!

So, why do house prices keep on increasing? There are many factors at play here, but to avoid this blog reaching the thickness of an Argos catalogue, a reference for the ‘Generation X’ or older readers out there, I’m going to look at one aspect and that’s ‘supply and demand’.

A G.C.S.E Business Studies lesson resounds in my head every time I think about this, and it comes down to supply and demand. Like most economical viewpoints and theories, often the simplest of explanations are the most relevant and that is, we simply don’t have enough housing to support the demand and, in addition to that, the rate at which we are building houses is less than the increase in demand. In other words, the issue is getting worse in favour of house prices increasing!

In 2015, the government set a target to create 1 million new homes by 2020 (200,000 per year). However, other estimates suggest that this needs to be more like 300,000 or even 345,000 per year, either way, this target is not being met. So, the issue of supply vs demand continues to get worse. In fact, in August 2020 during the discussions of a ‘White Paper: Planning for the Future’ the Prime Minister, when referring to the changes required in the housing market, said this is a “Radical reform unlike anything we have seen since the Second World War.” So, the issue is serious!

Perhaps we’ll explore ways in which this crisis can be resolved in another blog, but for the time being, it’s safe to say that the underlying factors in the housing market look very strong!

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