House prices in the UK will see an average increase of 3% over the course of next year as the number of transactions stabilises, according to the RICS housing forecast for 2017.

Forecast in brief

  • Transactions set to stabilise in line with recent trend, but fall short of full year 2016 outturn
    Supply shortfall to continue pushing prices higher with prices to increase by 3%
    Rents likely to increase by 2-3% across the UK in 2017

Need for more properties

Following on from the 2016 forecast, the supply pipeline or lack of it is at the forefront of the analysis and dominates the residential market. While there is an improvement, the legacy of building on an insufficient scale has left the average inventory on estate agents books close to a historic low.

What’s in store for 2017?

Looking forward, transaction activity will stabilise and is likely to come in between 1.15 and 1.2 million, a little below the 1.25 million likely to be recorded for the whole of 2016. The prediction for 2017 reflects the trend over recent months.

House prices are predicted to rise across the whole of the UK in 2017 with an average increase of 3%. East Anglia is likely to continue its trend during 2016 and alongside the North West and West Midlands is likely to record gains higher than the national average. Meanwhile, prices in Central London look set to stabilise after recent declines, with support provided by the weaker exchange rate encouraging foreign buyers.

Simon Rubinsohn, RICS Chief Economist said “Although recent announcements by the government on housing are very welcome, the ongoing shortfall of stock across much of the sales and lettings markets is set to continue to underpin prices and rents. As a result, the affordability challenge will remain very much to the fore for many. Meanwhile the lack of existing inventory in the market is impacting the ability of households to move and will contribute toward transaction activity over the whole of 2017 being a little lower that in the year just ending.”

The British Property Federation (BPF) today called on government to consider a raft of policy measures to support real estate, following the publication of a RICS report showing a significant decline in confidence, activity and investor interest in UK commercial real estate.

The RICS UK Commercial Property Market Survey for Q2 2016 showed that investment demand for commercial real estate has fallen sharply and that, although some immediate turbulence was to be expected following the EU referendum, the sector may in fact face a far more significant downturn. The BPF urged government to monitor the situation closely and consider introducing a package of support for the real estate sector, including:

  • Accelerate its proposed reform of business rates to support activity in the broader business economy
  • Delay the introduction of plans to restrict the tax deductibility of corporate interest expense for a year until 2018, to ensure that the rules are implemented in a way that doesn’t deter investment
  • Introduce a range of tax reliefs for build to rent development, including CIL relief, relief for modular construction, and SDLT relief for new build to rent developments on the condition that they will be let on tenancies of three years or longer with rent increases tied to inflation
  • Maintain an absolute and continued commitment to devolution and public infrastructure investment in HS2, the East-West Rail Line, Crossrail 2, and an imperative decision on growing airport capacity.

Ian Fletcher, Director of Policy (Real Estate) at the BPF, said “This is not the time for knee-jerk reactions, but commercial property and a number of the government’s priorities are interdependent. Ministers must closely monitor developments in the commercial property market and be ready to act in weeks, not months, if evidence continues of a slowdown in investment.

“Commercial property investment is not always an obvious priority for governments because its social and economic impacts are indirect, but construction and development activity flow from it, ultimately impacting on jobs and economic growth. In scenarios like this the focus is often on construction, but you don’t get construction without an investment client, so it is essential that government monitors fluctuations in investment very closely.”

The full results of the RICS UK Commercial Property Market Survey can be found here.