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Residential property market in the United Kingdom

The British residential property market has experienced massive price expansions over the past few years (beginning around 2000/1) with house prices often expanding at a rate of 20 per cent per annum. Since early 2005 the market appears to have begun to cool (with prices remaining relatively static and dropping in some cases). Total residential housing stock represents over 22 million units as of 2005, with approximately 134,000 new houses built p.a. (based on 2002). The British Government has launched two reviews of the housing market, due to a perceived market failure (only 134,000 new builds for 179,000 household formations), the Barker Report (supply issues and what can be done to increase flexibility in the market) and the Miles Report (the UK mortgage industry and how it can be made more long-term). Issues of social exclusion have also arisen in recent years, especially for critical personnel (nurses, teachers, police, etc.) in most areas (both urban and rural). Widespread disillusionment with property prices has recently led to the formation of political campaigns such as Priced Out aiming to pressure the government into taking action on the affordability issues particularly for the under 40's.

There has also been uneven growth in house prices, both in regional terms (London has not seen much growth in the past few years, whereas the North of England and Scotland have seen dramatic rises) as well as affordability issues for locals (such as in the Highlands, where second-home buyers have nearly priced out of the market the local population). In some cases buy-to-let investors and second-homes buyers are the cause of house-price inflation, but there remains the simple problem that insufficient housing stock is built as compared to household formation. Areas with low density (especially those desired for their natural beauty) are having a harder time dealing with the present housing/household ratio, as simply building more houses is often politically impossible or undesirable.

Some have questioned the Baker reports estimates of a housing shortage and there being little evidence of any shortage of property to rent (if not buy), particularly in the North of England. The figure of 134,000 built in 2002 is contradicted by the National House-Builder Council http://www.nhbc.co.uk/Newscentre/Library/filedownload,28930,en.pdf which quotes there were 160,800 homes built in 2002. In 2006 they quote 185,000, which is above the Barker report estimate of household formations. There appears to be little statistical evidence to support the claims of the number of new homes built are the cause of the house prices rises, for example in 1990's an average number of houses built a year was 158,910 (NHBC figures)against 172,000 for the 5 years to 2006. Yet prices at the end of 1990;s when adjusted for inflation were less than at the start 1990, where as prices from Q4 2001 to Q4 2006 increased 60% when adjusted for inflation. Using the Nationwide's house price data http://www.nationwide.co.uk/hpi/downloads/UK_house_prices_adjusted_for_inflation.xls . House price at the end of 2006 were 35% above the trend prices of the last 30 years.

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