House price rise to prove a bright spot amid gloom

THE cost of a typical house in the UK is expected to surpass the 2007 pre-financial crisis peak for the first time next year, despite challenging economic conditions, a think-tank has predicted.

The Centre for Economics and Business Research (CEBR) expects house prices to be 2.3 per cent higher than in 2007, costing an average of £227,000.

The forecast comes despite the CEBR suggesting that house price growth will be sluggish this year and next due to subdued wage growth, ongoing bank recapitalisations, and financial unrest in the eurozone.

Instead it expects that the coalition government’s “Help to Buy” scheme will initially raise prices – around 0.8 per cent – before increasing housing supply.

Help to Buy, announced by Chancellor George Osborne in the Budget last month, is aimed at assisting buyers in England and Wales to get on, or move up, the housing ladder. It is also targeted at stimulating supply growth as home builders respond to higher prices.

Daniel Solomon, the main author of the CEBR report, said the impact of the scheme would be “modest”, but that it would eventually lead to about 4,800 new houses being built in 2015.

The outlook for house builders in England and Wales comes as the construction industry remains under pressure, according to an industry database.

The Glenigan Index, which counts the number of construction project starts across the UK, was down by 21 per cent for the three months to March, compared with 2012.

The pace of decline in private sector activity accelerated in March as new projects in the private housing, industrial and retail sectors fell faster compared with February’s declines, Glenigan said. However, project starts in the health, education and other public building sectors all continued to increase.

Glenigan economist Andrew Whiffin said: “The poor start to the year continued in March as the rate of decline in starts quickened. Some sectors reliant on public funding actually improved; starts in health, education and other public building were up on a year ago.

“However, the fall in private sector activity far outweighed these gains. Private housing, industrial and retail starts all saw the rate of decline accelerate, pointing to faltering investor confidence.”

The firm said that retail was the worst performing sector last month, with the value of starts during the three months to March half that of a year ago.

“While new supermarket projects are still providing the lion’s share of starts, the value of these projects is well below what was seen last year and work from other retail sub-sectors has almost dropped away completely,” said Whiffin.

Industrial starts were also weak, down 42 per cent in the three months to March. One of the best performing areas last year, the industrial sector has been badly hit by the lack of logistics and warehousing projects getting under way during the past three months, Whiffin said.

The residential sector also performed badly, with starts for private housing projects falling 24 per cent in the three months to March and social housing starts down 48 per cent.