There has been a serious shortage of liquidity in world markets after the US subprime mortgage companies were forced to write off unpaid mortgage debts. Mortgages have consequently become more difficult and expensive to arrange for. Macroeconomic uncertainties in the money markets have grown considerably which have started to be felt in the housing markets in the UK. Several mortgage companies suffered substantial losses in view of their mortgage advances becoming inappropriate. People were unable to repay the mortgages and they defaulted in large numbers thus leaving the banks with huge losses. With large-scale defaults on mortgages, house prices began to decline and such a pattern further compounded the losses of banks because the resale value of properties became lesser than their mortgage values.
In the UK, housing prices have been falling constantly since the beginning of 2008 and as per the nationwide Halifax Index, housing prices have started falling on an annual basis in real terms. There is a wide variation in the UK housing market in terms of prices prevailing in different cities and regions. Affordability is not expected to improve due to the cooling down of the housing market in the UK primarily because house prices had increased by almost three times during the last ten years. Therefore prices will have to fall substantially in order that they become affordable for average households. The credit crunch has in particular adversely impacted first-time buyers because of tighter criteria being implemented by lending institutions. The level of investments will reduce in the development of new flats due to the credit crunch and there will be increased availability of vacant units with the changing nature of demand thus reflecting excess supply in regions such as Manchester, Leeds, and Nottingham (John Muellbauer, 2009). Developers will have to change strategies in focussing on areas where demand is still strong and there will be a visible change in the types of property being developed with the emphasis being made on family housing.
Market activities being present at low levels, the number of transactions will decline by about 25% in the current year (CBRE, 2008). There is expected to be a long-drawn imbalance in demand and supply due to unmet housing demand and demographic projections of increased household formations. There will be cyclical volatility with a decline in outputs although demand will increase in certain segments due to a higher rate of migration in specific regions. The effect on the housing market will largely be dependent on the length of the economic downturn and stability in employment patterns. Hence it becomes imperative for UK cities to plan strategically in shaping local markets that result in delivering a housing plan which can bring about equilibrium between demand and supply.
The house building targets are now threatened because reduced turnovers in the sale of new houses have adversely impacted building activities. There was a dismal fall in the supply of new houses in 2008 whereby only 172000 units were constructed as against the annual government target of 240,000 housing units. Developers are confronted with rising costs of construction by way of increased prices of labor and materials and infrastructure levies. There is further pressure being imposed on builders due to regulatory requirements such as attaining zero carbon targets by 2016. The downturn in the markets and the prevailing economic uncertainties indicate the interdependence amongst the wider economic patterns and housing market.
This is very much relevant at the local levels also as much as it is at the national and global levels. Cities in the UK will have to focus on building relationships between the local housing markets and their economies in ensuring that new supplies in housing further strengthen competitiveness(Catherine Glossop, 2008). The responsibility in this regard lies with cities in making appropriate plans and tools to influence and shape local markets in delivering a growth plan in housing that is well-aligned with demand and supply. To bring about sustained economic growth it becomes necessary to increase the supply of flexible housing by helping to cater to the needs of affordable housing for different consumer segments, enhancing market stability, and supporting labor mobility. To stabilize market conditions and to meet supply targets efforts need to be made in enhancing institutional investments so that a boost is given in the overall economic activity to offset the adversities of the credit crunch.
Works Cited
Catherine Glossop, The credit crunch and implications for the UK housing market, 2008, Web.
CBRE, Credit Crunch and the Property Market, 2008, Greater London Authority. Web.
John Muellbauer and Stephen Nickell, The UK Housing Market: Measured Decline or Total Collapse, 2009, Web.
Mar09.ppt#289,1,The UK Housing Market: Measured Decline or Total Collapse? 2009. Web.