Apartments
and urban areas set for a comeback as buyers prioritise affordability and value
for money.
Key
takeaways
- Tide turns on the desire for coastal and rural areas as demand for
affordable cities and apartments rises
- Buyers once again attracted to urban settings with plenty of jobs
and services
- The dynamics that have shaped the housing market over the last 5
years are shifting
Affordability and
value for money will be the big key drivers for the housing market in 2023.
These two factors
are going to flip the flight to rural and coastal areas, which has dominated
the housing market in recent years, into reverse.
Instead, apartments
and urban areas, which lost some of their popularity during the pandemic as the
nation began the search for more space in idyllic locations, are making a
comeback.
Zoopla’s Executive
Director for Research, Richard Donnell says “The dynamics that have shaped the
housing market over the last 5 years are shifting.”
Why are urban areas becoming popular again?
Influenced by
higher mortgage rates, household incomes and the actual level of house prices,
buyers are being priced out of the more expensive markets, preferring to look
in areas where homes are more affordable.
Increasingly keen
to secure homes in urban settings, where jobs are being created and more
services are available, buyers are now showing a stronger preference for towns
and cities.
The popularity of
family homes in city suburbs and commuter areas is also rising, with demand for
homes in these areas climbing to above average levels over the last year.
How rising mortgage rates are affecting where buyers
choose to live
Mortgages are
currently needed for seven out of every 10 home purchases.
Higher mortgage
rates are currently affecting what many people can afford to buy, as they mean
more income is needed to secure a sale.
The more expensive
a market, the greater the number of households that are priced out.
This in turn
weakens demand, leading to fewer sales and possible price reductions to secure
those sales in these areas.
In affordable
markets with lower average house prices, the opposite is true.
Why affordable markets will fare better in 2023
As demand for more
affordable areas increases in 2023, these markets are likely to fare better
than their more expensive counterparts in terms of price falls over the coming
months.
Most housing markets
have recorded house price gains of 25.4% over the last 5 years. That's above
the level of consumer price inflation (+19%) and average earnings (+22%) over
the same time period.
Economic growth,
good affordability and low mortgage rates have all enabled above average price
gains over this period.
However, we expect
house price growth to slow in these higher-growth markets in 2023.
UK house prices are
predicted to fall by an average of 5% in 2023.
But in the more
affordable markets, the falls are likely to be lower, as the hit to buying
power from higher mortgage rates will be felt less keenly.
Which affordable cities are buyers interested in?
Major towns and
cities, including Bradford, Swindon, Coventry, Crewe, Milton Keynes and
Southend are all registering above-average demand.
These areas all
have their own employment base, but they also enjoy good transport connections
into much larger employment centres, such as London, Leeds, Manchester and
Birmingham.
We believe
employment growth will continue to stimulate housing demand in these affordable
city regions throughout 2023.
Why flats are becoming better value for money
Apartments make up
around 1 in 5 homes in the UK, but price inflation for them has lagged behind
the growth enjoyed by houses.
Across the UK,
houses are currently valued at just over twice the price of flats. That’s the highest
price difference seen for 20 years.
In the capital, the
average price of a house is 1.7x the price of a flat, up from 1.4x a decade
ago.
Flats haven’t
experienced those same value gains as houses partly because the search for
space made them a less popular option during the pandemic, but also because
buyers were experiencing concerns over cladding and leasehold charges.
However, we expect
demand for flats to increase throughout 2023, as buyers seek better value for
money.
The government’s
moves to ensure cladding problems are remediated in most buildings will also
help to boost their popularity further.
Taken
from an article by Nic Hopkirk for Zoopla
First
published22 December 2022
https://www.zoopla.co.uk/discover/property-news/house-price-index-december-2022-buyers-on-the-hunt-for-affordable-cities-and-flats-in-2023/