Six years on from one of the biggest housing market crashes in living memory, the UK property sector is once again booming, with talk turning to the risk of a new housing bubble. Recent figures show that house prices rose at their fastest rate in 11 years in September while home sales reached their highest level since 2009.
This spike in house prices is the culmination of a long-term recovery in the housing market. Prices across the UK rose by 3.8 per cent in the year to August 2013 while those in London increased by an astonishing 9.7 per cent. According to the Office of National Statistics, the average UK house price now stands at £247,000, the highest figure since records began in 1968, while the average cost of a home in London is £544,232.
Demand and no supply
A number of factors have been attributed to the growth, among them the recovery in the UK economy which, according to the International Monetary Fund (IMF), is expected to see GDP expand by 1.4 per cent this year and by 1.9 per cent in 2014, one of the fastest rates of growth within the developed world. An improving economic outlook, combined with historically low interest rates have led to an increase in mortgage lending, which reached a five-year high in October.
The increase in demand has met with a lack of supply of new homes, which has also pushed up prices. Just 135,000 new homes were completed during the 2012/2013 financial year, the lowest number since the 1920s when records began, and equivalent to a deficit of 100,000 a year.
The current deficit is showing no sign of abating and, according to some sources, is set to reach crisis levels in the next few years. According to Channel 4 news, the UK will have two million too few homes by 2020 unless significant action is taken. With prime minister David Cameron taking criticism for the current housing shortage, Labour party leader Ed Miliband has pledged to increase the number of new homes built per year in England to 200,000 if his party is elected to power in 2015.
Your place not mine
The housing shortage and subsequent elevation in house prices are being keenly felt by young people. Having stood at 28 at the start of the 2000s, the average age for a first-time buyer in the UK is now 35, leaving today's 20-somethings cruelly dubbed "generation rent" by the media.
Recent government initiatives such as the controversial Help to Buy scheme, which targets first-time homebuyers, have made relatively little impact to date. The scheme allows buyers to purchase a new build home with just a 5 per cent deposit, but has received just 4,000 applications since it was launched in April 2013, a drop in the ocean given the 3.5 million estimated households currently renting in the UK.
Investors have been quick to take advantage of the growing demand for private rental properties across the country. Between 2007 and 2012, the value of the private rental sector grew by 42 per cent to £840 billion, with the average investor pocketing £8,164 a year in rental income.
William Harragin is the founder of rentalpinboard.com, an online lettings management platform used by both tenants and landlords. "A whole generation is being forced into the rental market as the barriers preventing people from owning their own homes increase", William explains.
"We estimate that by 2018, one in five households, a total of 5.7 million in England, will be renting on the private sector. Those with money or capital to invest in the housing market stand to make significant gains, in terms of both rental yields and gains in the value of their properties."
Young, free...and homeless
As competition for rental space grows, those left unable to purchase a home face ever-increasing rent. The average cost of renting a home privately across England and Wales reached a record high of £757 a month in September 2013, with the cost for London rising to £1,126.
Students have been among those worst hit by the price increases with those studying in the capital bearing the brunt of the recent hikes. At the top of the list of most expensive universities for student housing is City University, where students were found to be forking out an average of £198 a week for accommodation.
"It's a nightmare scenario," says Tom Hollis, a postgraduate student at London Metropolitan University living in north London. "Private rental costs seem to be spiralling out of control, but with home ownership such a distant dream, particularly in London, we're left with very little option but to suck it up and accept it."
According to a recent survey, seven in ten people under the age of 35 think they'll have to wait five or more years before they can purchase their own home, while one in two has given up hope altogether. Though Help to Buy has lowered the initial cost of a deposit, the amount required (an average of £16,103 for a London home) is still out of reach for most young people, many of whom are likely to be saddled with considerable levels of debt after their studies.
"I haven't looked in to Help to Buy," says Tom. "To be honest, as a soon-to-be graduate, even with a deposit I'm unlikely to be approved for a mortgage any time soon." For Tom's generation at least, change may be some time in coming.