House prices rose by 2.5 per cent over the past year, Nationwide reported today, as the property market steadied itself at a lower rate of growth.
Britain’s biggest building society said that low mortgage rates and healthy employment were supporting the market, although the average house price dipped £1,097 in November to £209,988.
It welcomed Budget measures to increase the supply of housing and said that Britain still was not building enough, but flagged an emerging trend that is adding to homes available – with more offices being turned into homes.
Conversions of offices, factories, or shops into flats are boosting housing supply
Despite the average price actually falling, Nationwide said the average UK home rose by 0.1 per cent in November, after seasonal adjustment – a statistical manipulation designed to enable slow sales months to be fairly measured against busier ones.
House price inflation stuck at 2.5 per cent – the same rate as October – with the average property just over £5,000 more expensive than a year ago.
Nationwide noted that a growing number of conversions from offices to flats was starting to make a difference to housing supply and highlighted that this accounts for more than one in five new homes created in London at the moment.
Completions in England over the past 12 months were about 13 per cent below 2007 levels, but once ‘change of use’ properties are included, the number of completions is only 3 per cent lower than ten years ago.
‘Interestingly, it is “change of use” of buildings – i.e. from shops, offices and other commercial purposes, to homes – which is providing the biggest boost, driven by a shift in government policy,’ Robert Gardner, Nationwide’s chief economist said.
‘From 2014, automatic permitted development rights were granted to convert offices into residential properties.’
He said that since then, ‘change of use’ additions to housing have nearly doubled, from around 20,000 in 2006 to 2007 to 37,000 in 2016 to 2017.
Of these, about 18,000 were granted under the new permitted development right, Nationwide said.
This has provided a ‘particularly strong’ boost to housing supply in London, where the increase in properties each year is now 22 per cent higher than at the 2007 to 2008 peak, with ‘change of use’ accounting for over a fifth of new properties added over the past year.
‘While across the UK the price of housing and residential land is higher than the price of commercial property and commercial land, in London the gap is sufficiently large to dwarf conversion costs and make the developments very profitable,’ Gardner said.
Other cities with expensive housing and limited supply also seem to have benefited from the policy change. In Bristol, net change of use accounted for the majority of new housing supply in 2016 to 2017, with 1,040 additions from ‘change of use’ versus 900 new builds.
Change of use accounted for over a fifth of new properties added over the past year in London
Mark Dyason, managing director of development finance broker Thistle Finance said: ‘So called ‘office-to-resi’ conversions have breathed life into the London market in particular. Change of use is delivering real change across the capital.
‘Clearly the trend will slow at some point but in the meantime office-to-resi conversions are playing a key role in alleviating supply pressure around the UK.’
Commenting on the recent decision in the Budget to abolish stamp duty for first-time buyers purchasing a property up to £300,000, with relief for those purchasing a property up to £500,000, Nationwide said it was likely to have only a modest impact on overall demand.
He said in many regions, first-time buyers already paid little or no stamp duty as the price of the typical first-time buyer property was below the general threshold of £125,000 where stamp duty kicks in.
Gardner said: ‘The potential savings are more substantial for borrowers where house prices are higher, especially in London and the South East.’
Brian Murphy, head of lending at Mortgage Advice Bureau, said that it would take at least six months to see any effects of the stamp duty changes on the market.
‘What today’s report does support, however, is that the market overall is holding steady as we approach the end of the year, and regardless of the current economic and political situation, it’s quite possible that we’ll see a continuation of the current market conditions as we enter 2018, which would get the new year off to a sound start,’ he said.
Will cutting stamp duty drive up house prices?
The Chancellor axed stamp duty for first-time buyers in the Budget up to £300,000, but his own watchdog claimed it would drive up house prices.
So is the Office of Budget Responsibility right? On this excerpt from the This is Money podcast, Simon Lambert explains why he thinks its logic is flawed and that we need to be even more radical on stamp duty – maybe even making the seller pay.
Press play to listen below or listen (and please subscribe if you like the podcast) at iTunes, Acast and Audioboom or visit our This is Money Podcast page.