What can we expect from the housing market in 2022?

Mark Aspinall 29 December 2021

On the 16th December the Bank of England increased interest rates from its low of 0.1% by one quarter of one percent, not much, but the first rise in 3 years. This was forced by an inflation rate of 5.1% for 12 months to November 2021 - the highest for 10 years and mostly driven by the extreme rises in fuel and energy. To make things more difficult, the House Price Index might be as much as 9% higher by year end (driven in large part by the tapering stamp duty relief which finally ended in September).

HM Treasury is going to be walking a difficult tightrope in 2022 as it tries to balance stimulating the economy post Covid and stopping wage and price rises running out of hand further fuelling inflation. This initial rate increase by BoE is an indicator of where they think the market is going and it seems likely that inflation will force further increases in base rate interest throughout the year.

With Covid interrupting supply of raw materials and labour, 2021 was also a difficult year for housing. Latest UK government statistics says that 216,000 additional dwellings were created in 2020-21 - down 11% on the previous year. In a market where there is already a significant shortage this only makes the situation tougher. The rises in raw material prices will also slow down new builds in 2022 and those homes that are built will cost significantly more. We may also see further slowing of the building market if some of the house builders adopt a ‘wait and see’ policy before committing to developing from their existing land bank. This in turn will make it more difficult for home purchasers and first time buyers in particular.

Finally, with an increasing shortage of houses to buy there will be more demand for rental and whilst we have seen an increase of around 1.9% nationally in 2021, we should expect to be seeing significant increases in rents in the private market in 2022.

What does this mean for the housing market?

Yet more pressure: especially for first time buyers as home costs will rise from both a net shortage of properties and the increasing costs of construction. Also, inflation will squeeze the affordability calculations of the major mortgage lenders potentially reducing the amount that can be borrowed. In a rising market (even if slowly) that’s a double whammy on trying to raise the deposit to get on the housing ladder in the first place. Overall, bad news for FTBs but potentially a ‘soft landing’ for market as a whole as high demand meets short supply and an ongoing ‘race for space’.

Rental will remain buoyant as people need to live somewhere and if homes for purchase are in short supply then there’s only one way for rents to go.

What does all this mean for local homes providers?

None of this is rocket science (or brain surgery if that’s your preference) but it does highlight the complexity and uncertainty caused by these conflicting forces of economics and desire. Whatever else happens, the pressure is not going to let up for councils and housing associations as they will continue to have to catch those that cannot afford to buy and cannot afford to stretch to the increasing private rentals we will see (not forgetting the cost of living rises that will impact affordability). There will be demands for the public sector to ‘do something’ and potentially without the capital or lead time required to fundamentally address the issues. Finding imaginative ways to support home buyers and renters without spending large amounts of capital will become increasingly important: those organisations showing flexibility and imagination are likely to fair best. The only thing we can predict with certainty is uncertainty in 2022: a year that may well be both difficult and challenging.