Robert Gardner, Nationwide's Chief Economist, commented on the figures: “UK house prices edged up by 0.1% in March though the annual pace of growth slowed for the seventh month in a row to 5.1% from 5.7% in February. UK house prices are currently around 2% above their pre-crisis levels.
Economic conditions have remained supportive, with labour market conditions continuing to improve and mortgage interest rates close to all-time lows. Nevertheless, the pace of housing market activity has remained subdued, with the number of mortgages approved for house purchase in January around 20% below the level prevailing one year ago.
While house price growth has moderated across the UK, there is still significant regional variation. Prices in London and the South of England continued to see the strongest rates of annual growth, though there was a noticeable softening this quarter, particularly in London.
Price growth also continued to cool in the North West of England, Scotland and Wales, even though prices in these regions remain some way below their 2007 peak. Indeed, in annual terms, prices in Wales declined by 0.5% in Q1.
Housing supply slow to respond
Despite relatively strong rates of house price growth in recent years, there has only been a modest pickup in house building after the sharp fall seen in the wake of the financial crisis. For example, in 2014 around 119,000 houses were built in England. This is 11% higher than the low point seen in 2010, but 25% below the average rate of building in the five years before the financial crisis. Moreover, official estimates suggest that even before the crisis, building activity was running below that required to keep up with the natural growth in the population.
Hopefully, construction activity will strengthen further in the period ahead. The major house builders appear to have capacity to expand supply, with most reporting land banks, which, at current rates of building activity, could support construction for more than five years. Demand prospects remain favourable thanks to the strength of the labour market, continued low mortgage rates and schemes such as Help to Buy, which are helping to provide those with smaller deposits access to mortgage finance. This in turn should help to provide house builders with confidence that there will be demand from buyers if the homes are built.
Regional building trends suggest that activity is not completely insensitive to price signals
The sluggish recovery in housebuilding in recent years reinforces the view that UK housing supply is slow to respond to price signals. However, there is some evidence that more building is taking place in regions where affordability is more stretched.
There is a relationship between the rate of increase in the housing stock in recent years and the level of house prices relative to local earnings. For example, regions that were more affordable, such as the North and North West, have seen the smallest increases in housing stock, with a rise of 1.1% over the 2011 to 2014 period, well below the average increase of 1.9% recorded in England and Wales as a whole.
By contrast, areas such as the South East and South West, where house prices were relatively expensive, at more than six times average incomes, have seen the housing stock rise by 2.1% and 2.4% respectively over the same period.
London remains something of an outlier, with housing stock increasing by 2.6% over the 2011 to 2014 period, above the national average. However, we would have expected a rise of around 3.1% in housing stock over this period given the experience in other regions.”
