Housebuilding to fall ‘this year and next’

Estate agent Knight Frank has forecast falls in housebuilding activity both this year and next alongside a sharp drop in prices this year, as the market responds to the coronavirus pandemic.

Knight Frank added that house sales will also drop to a level more than 40% lower than previously predicted.

The agent, the first to make detailed predictions of the impact of the coronavirus pandemic on the housing market, said house prices will likely fall by 3% this year, which, if true, will be the sharpest annual fall in prices since late 2009, and the first annual fall of any kind since 2012.

The forecast is significantly more optimistic than that set out by the Centre for Economic and Business Research last week, which said it expected prices to fall by 13% in the 12 months to March 2021.

Knight Frank also said it expected prices to bounce back strongly in 2021, with growth of 5% more than making up for the falls in value experienced this year.

It also said that the current pause in construction activity “will undoubtedly lead to a drop in new home completions this year and probably next”, but did not put a number on the fall.

The estate agent said it had based its predictions on the assumption that the current “lockdown” measures imposed on the economy will continue through April and May but will start to be lifted in June. If measures are lifted sooner, it said, it would mean a less severe hit, but any longer and the position could be even worse.

Knight Frank said the number of residential transactions is likely to fall to around 734,000 this year, 38% down on the number recorded in 2019, and 42% lower than the 1.3 million it had been predicting for 2020 prior to the covid-19 crisis.

The agent said it expects new homes sales to drop this year in line with its forecast for transactions overall.

Knight Frank said its modelling assumed a fall in GDP of 4% this year, broadly consistent with other economic forecasters, but that there would be few long term impacts of the crisis, with GDP rebounding by 4.5 next year.

Liam Bailey, global head of research at Knight Frank, said the expected revival in activity in 2021, would only go half-way to offsetting the “lost” sales seen this year. “For the government to see a full recovery of the market, with all of these “lost” sales carried forward, there will be a need for substantial incentives to ease market liquidity - including a reduction in stamp duty,” he said.