How Closely Connected Is the Number of New Builds Per Year And the General State of the Economy in the UK?
The fates of the property market in terms of house prices and mortgage rates is always closely tied to what is going on in the economy of a country. However, the number of new building projects is not quite as clear cut in terms of its relationship with things like economic growth.
House Building Projects and the Economy
Property projects can often be based on demand in certain areas, so if an economic situation causes people to migrate into or out of major cities, for instance, the demand for new homes in a given location may be high even in a poor economy. This was seen in Australia after the collapse of the mining boom as people moved back into major cities to seek work after leaving mining towns. In the UK, we have actually seen more new build projects this year than in any other period since the financial crisis, and this means that in spite of a weak pound and Brexit fears, property projects are still very much in commission.
Cost of Projects
However, one factor wherein the economy does affect building projects, even in the face of high demand in some regions, is the cost of materials. With a weak pound, all imported materials instantly cost the buyer more, and this can hold back some development projects where the cost of construction can become significantly higher, and also affect the cost of the resulting properties when construction does go ahead. This is something that makes it hard to predict which way things will go when the economy is struggling but there is still demand for new houses. Will property developers be willing to swallow the higher costs incurred, or find UK based suppliers, or will they rest on their laurels hoping to get better trade deals and a stronger pound after Brexit negotiations are complete?
Foreign Investment and the UK Property Market
Another consideration when it comes to the developments given the green light and the current economy in the UK is foreign investment. Anyone who follows the markets and things like FTSE 100 futures will know that foreign investment is very much a key point in the British business world, and while many investors may see opportunities from the current instability and the weak pound, others are no doubt put off of investing in UK developments when it is unclear what the situation is going to be after Brexit in terms of who will be allowed to actually live in the homes under construction. If there will be an exodus of EU passport holders from the UK after Brexit is complete, this means a lot fewer people in the rental market and also less potential foreign buyers for higher end properties in places like London.
The Department for Communities and Local Government showed encouraging statistics earlier this year, with 21 percent more new builds in progress than last year, and over 40,000 new properties for domestic use in progress. However, there is no denying that economic factors do play a part in the new build market, and it is difficult to predict how things will proceed until more is known about what things will be like after Brexit.