The housing market is in disarray, there’s no doubt about it. For the fourth consecutive month, the average UK house price dropped in December. This highlights the seriousness of the cost of living as well as higher interest rates. December prices dropped by 1.5% compared to November, with the average house price now at £281,272 in the UK.
Inflation has spiked into double figures for the first time in 4 decades. This is due to a combination of the war in Ukraine and the post-recovery of the pandemic. The Office for Budget Responsibility (OBR) estimates that household incomes will drop by 7% as recession weighs heavy. It seems like the last thing on anyone’s mind currently will be moving homes.
A combination of rising interest rates and uncertainty over household bills are the main factors behind the housing market crisis. What many media outlets are not pointing out though is the ways in which the housing crisis affects working. We break down the ways in which the housing crisis will affect both employers and employees, and the implications this will have on the wider economy.
What Is The Current State Of The Housing Market?
Over the last few years, the UK housing market has shown a consistent rise. This was during the pandemic where stamp duty breaks produced a rather volatile market. Recent figures from Halifax bank report that house prices are beginning to fall. The bank’s statistics from November 2022 showed a 2.4% drop in prices. This would make it the largest monthly drop since the beginning of the financial crash in 2008. As for December, the figure fell a further 1.5%.
The Director of Halifax Mortgages, Kim Kinnaird, stated, “The housing market was a mixed picture in 2022. Prices began to fall from September, as the impact of cost-of-living pressures, coupled with a rising rates environment, began to take effect on household finances and demand. The cost of the average home remains high – greater than it was at the start of 2022 and over 11% more than house prices at the beginning of 2021. We expect there will be a reduction in both supply and demand overall, with house prices forecast to fall around 8% over the course of the year.”
This has led to many housing market experts predicting house prices have reached their peak and inevitably will fall. The statistics around this remain varied in outlook however. The OBR predicts a 9% fall between now and Autumn 2024. On the other hand, Rightmove remain subtle in their expectations with a 2% drop in 2023. Estate agency Knight Frank estimate prices will drop by 5% in 2023, to then be repeated in 2024. Capital Economics estimate house prices will fall by a total of 12% by mid-2024.
The housing crisis has naturally had a knock-on effect on the rental property market. Many landlords have passed on increased mortgage and maintenance costs to tenants. According to the ONS, the average monthly rent in England was £795 between April 2021 and March 2022. For London that figure stood at £1,450.
How Is The Housing Crisis Expected To Affect The UK Workforce?
Due to the sheer magnitude of the housing market in the UK, its effects stretch far above the housing sector. One of the ways in which the housing crisis will also affect the economy is through the workforce. Recruitment and filling roles has been a problem in the UK since the pandemic. It seems that it is becoming increasingly difficult for people to find an affordable home and fund the commute of getting to and from work. This has led to many employers allowing staff to work remotely more and not come into the office. Whilst this offers a lifeline in a recruitment sense where job roles can be filled with quality staff who don’t necessarily need live within close vicinity of the office, it throws up other problems.
Due to the nature of remote working, many employees are choosing to live far away, travelling to the office infrequently. When they do attend the office, many employees are asking for travel expenses to be reimbursed. A large number of businesses will inevitably find it challenging to offer this expense cover. As well as this, office real estate has been on a downward slide for a few years now. Offices aren’t as full as what they used to be pre-pandemic. This has led more and more employers to reduce their office space and downgrade.
What Is To Happen To Housing In The Future?
Moreover, from an environmental perspective remote working is a huge win in terms of cutting carbon emissions. As well as this, using building management or smart office technologies which conserve use of energy and space contributes greatly to a business’ environmental and social governance (ESG). This efficient use of space and resources could see a repurpose for empty offices and buildings in large cities. Already in some city centres, these empty buildings and shops are being redesigned as homes. Employers can help accelerate this trend by working with developers on build-to-rent schemes which could house their employees. Along with government support, this could be a huge gamechanger for the housing market. It would also provide huge benefits to the environment and workers as a whole.
Reforms to the housing market remains a long-term project for the government which will take a long time to come to fruition. Employers using their initiative and taking the matter into their own hands could see large scale social change which will effectively translate to the wider economy.
We hope this has outlined to you the current housing market crisis and the effects it will have on employment and the workforce. If you’d like to know any further information on anything mentioned, or anything accounting related for that matter, please do not hesitate to get in contact with us at Nordens, where one of our trusted advisors would be happy talking you through your query.