As we write, it is too early to forecast the full impact the pandemic may have on capital markets and investment activity, yet alone a specific subsector of the property market. However, what we do know is that it is crucial that low to medium income families, many who are key workers and are currently helping keep core services such as the NHS running, need to feel they have security of tenure.
Providing homes for those on low to middle incomes becomes particularly poignant amidst the worries about meeting outgoings and the threat of a recession. There is need to deliver more homes across the country and for key worker households ineligible for social housing and struggling in the current private rented sector or unable to get on the housing ladder is clear.
We saw during the last financial downturn, the Global Financial Crisis, that residential rents held up demonstrating that as a necessity of life, housing demand is inelastic. This demand characteristic is one of the primary reasons behind the lack of correlation between residential property investment and other asset classes and why meaningful diversification can be achieved by investment into the sector.
The two key factors the BMO UK Housing Strategy can influence are:
- Housing supply, we need 300,000 more homes each year
- Responsible property management so tenants have accommodation that is fit for purpose.
The UK housing market is on the verge of shutting down as social distancing is enforced and the likely slowing of transactions in the event of a recession. Overall, and without significant intervention, the result will be a reduction in the number of new homes being given planning permission, built and delivered. There will also be significant pressure on private landlords – will they pass on the benefit of the mortgage holidays afforded to them and could they default on their mortgages and repossessions increase.