House prices look set to increase almost twice as fast as inflation over the next five years and outpace wages, according to the latest forecast from JLL.
Residential property prices are expected to surge by 20% between now and 2029. That uptick would outpace a 11.6% rise in consumer price inflation predicted for the same five-year period by the Office for Budget Responsibility (OBR), and a 14% increase in wages predicted by Oxford Economics.
Rents are also forecast to grow more quickly than wages, increasing by 17% by 2029, JLL said.
Marcus Dixon, director of UK residential research at JLL, said that the next five years were unlikely to herald any radical changes in affordability.
He said: “House prices in the past two or three years haven’t necessarily kept pace with wages. In theory, comparing average wages with average house prices, if you’re going to buy, [homes] are a bit cheaper now than they were a few years ago.
“The problem with that is, the cost of borrowing has gone up. The increase in cost of borrowing wipes out most of the benefits of wages outpacing prices.
“On the rental side, that challenge is even more acute because, whereas house prices in the last two or three years haven’t kept pace with wages, rents have done and more so.
“The challenge around affordability, particularly in the rental market, is sadly going to continue in the short to medium term.”
The UK government has pledged to build 1.5m new homes this Parliament in an effort to tackle affordable housing by narrowing the supply-demand imbalance.
However, JLL cast doubt on the Government’s ability to fulfil this pledge. JLL estimated 1.2m new dwellings will be delivered in the next five years, falling short of Labour’s 2029 target by 300,000.
The property group flagged issues around planning, availability of builders and tradesmen, as well struggles sourcing the necessary materials as major issues holding back new housing supply.
Dixon said: “The government obviously has quite ambitious plans for housebuilding, but it takes quite a long time for it to move through the system. We can’t suddenly magic all of these new homes [into being].”
JLL said it expects to see a decline in the number of buy-to-let landlords in the market over the next five years on the back of the Budget, which saw an increase in stamp duty for landlords looking to purchase additional homes.
It said in its outlook report: “A new government with ambitious plans for housebuilding and more comfortable with a higher tax environment, particularly for wealthier households, could mean future growth prospects differ from the recent past.
“But neither of these seem a sufficient departure from the current trend to meaningfully change the path of growth over the coming five-year period.”