Living with COVID-19

Our Head of UK Living Research, Nick Whitten, highlights current market activity and potential future trends impacting the UK residential market in light of Covid-19, analysing housing transactions, house prices, lettings and construction activity. 

More than half of the world’s 7.7 billion people have been living under Government enforced lockdowns over the past few weeks due to COVID-19.

It is hard to imagine another single event in human history that has had such a direct impact on such a large percentage of the world’s population all at once.

But life will return to normal and COVID-19 will eventually abate.

And while the human tragedy will linger long in the memory, there are by-products of this crisis that may have a more fundamental influence on how we live going forward.

The crisis has created a short-term sharp shock to the global economy, that is in no doubt. But due to widespread Government protection measures a sharp bounce back in activity is also possible once normal service resumes.

Sales on hold

In the UK, the housing market is on ice: the government has advised that buyers and renters delay moving while emergency lockdown measures are in place. This has meant that all but the most advanced sales are now on hold. We estimate circa 250,000 sales are paused based on the average typical quarterly sales rate for this time of the year.

But if normal service does resume from the Summer, it seems highly unlikely that the ‘lost sales’ could be absorbed in the second half of the year.

For this to happen, the typical monthly sales rate would need to jump from circa 90,000 to 135,000. Only three times in the past 15 years have monthly sales reached or exceeded that level – in June 2006, August 2007 and March 2016. To kickstart the market and make up for lost sales the Government may need to consider introducing short-term demand-side stimulus packages such as Stamp Duty holidays or a variation of Help to Buy which draws in more potential customers.

House price impact

While the effect on sales volumes has been dramatic, there has so far been little evidence of a fall in house prices, largely due to a fundamental lack of activity. Forced sellers would normally drive down prices in a crisis, but due to Government job protection schemes and the availability of mortgage holidays there are very few potential distressed vendors. Once the market does pick up, developers may consider introducing short-term incentives or discounts to drive sales but this could also be short lived if Government introduces stimulus packages. Furthermore, prices should be supported by some fundamentally positive buyer factors such as record low mortgage rates and Sterling remaining fundamentally undervalued in the eyes of international investors. Alongside this, a tightening of new housing supply due to stalled developments will reduce new build purchasing opportunities.

Construction pause

But how significant is the potential fall in new homes supply likely to be. We estimate a potential 30% reduction in starts to circa 135,000 in 2020 with a less pronounced 20% fall in completions to circa 160,000 as developers prioritise finishing on-going projects. These expectations will make uncomfortable reading for Government given its long-term priority to boost housebuilding. While the construction industry has not been subject to a full lockdown, many housebuilders have ceased activity due to the difficulty in observing social distancing regulations. Government will need to be mindful of avoiding a repeat of the Global Financial Crisis when many construction companies went into administration and significant construction capacity was lost forever. Housebuilders and their supply chains can survive a temporary pause, but the longer this goes on, they will need support to ramp up activity once again.

But what can we learn from countries which are further forward in the pandemic. Our China team has shared data with us showing just under 20% of people have formulated a plan during their COVID-19 isolation to buy a new home when the crisis ends. Perhaps a similar bounce in demand could occur here in the UK?

Long-term impacts

While we are still in the midst of the pandemic it is almost certainly too early to draw firm conclusions on the long-term impacts on living. However, COVID-19 is fuelling some questions around longer-term living trends which warrant some attention.

After decades of global urbanisation which now sees more than half the world live in cities, will a fear of higher disease transmission risk now drive a major de-urbanisation trend?

Forecasters can be quick to jump to false conclusions in the immediate aftermath of major events: After 9/11 the industry incorrectly predicted the end of high-rise living and working. The inherent attractions of large cities including greater access to cultural, leisure and working opportunities should outweigh the short-term concerns about disease risk. Further to this, some of the world’s worst effected COVID-19 locations have been in relatively small town settings such as Bergamo in Lombardy, Italy, Albany in Georgia, USA, and Mulhouse in France.

Communal living

Will a new found fear of viruses cause people to shun higher density community living solutions? With millions of people across the world currently living in enforced isolation, the importance of social interaction could now be understood more greatly than ever before. Researchers at Brigham Young University have found that loneliness can be linked to cardiovascular issues. Meanwhile researchers at Weill Cornell Medicine in New York have found that isolation can cause an increase in anxiety or depression within a very short period. Further evidence around loneliness and mental health will emerge from this crisis and may well underline the importance of community-led living solutions as opposed to hinder them.

Smart cities boost

The aftermath of COVID-19 should increase the imperative to develop truly scalable smart city solutions using technology to track health and mobility. The current health concerns could force the redesign of buildings, places and spaces incorporating smart technologies so that social distancing can be ‘turned on or off’ without significant disruption.

Over the coming weeks we will use our global reach to monitor how other countries are recovering from the crisis. It is certain that this crisis will change aspects of how we live and we will continue to identify and explore those aspects in more detail. 

Nick Whitten – Head of UK Living Research

Related articles