Ten years ago the UK’s housing stock was worth an estimated £2.9 trillion. Within just five years, at the peak of the market, this figure had rocketed to £5.4 trillion. Today it stands at £5 trillion.

The distribution of value amongst different types of property tells a story of an increasingly polarised housing market. A growing share of value comes from the private rented sector. Such property is now worth some £893 billion, equivalent to 18% of the total value of all UK housing.

And amongst owner occupiers, those who own their property outright hold an increasing share of the total pot. Some £1.7 trillion worth of owner occupied housing is now completely free of mortgage debt. This figure is just 7% below the total value of homes subject – to a greater or lesser degree – to a mortgage.

The UK housing market is increasingly driven by investment at one end and substantial home owner equity at the other, symptoms of a market in which wealth is increasingly concentrated in fewer people’s hands.

Private renters

The UK’s housing stock is estimated to be worth around 6.5% less than at the peak of the market in 2007. By contrast, the private rented sector has grown to such an extent that its aggregate value has risen by 36% in the same five year period. Since 2002, the volume of private rental stock has grown by 61%, while its value has risen by an astonishing 153%. This has happened over a decade when the total value of all housing stock has risen by 72%.

In the five years pre-peak, from 2002-2007, the sharp rise in house prices both restricted accessibility to home ownership amongst would-be first time buyers and underpinned demand from buy to let investors.

The dynamic has changed – for investors at least. With lower prevailing and forecast rates of capital growth, income yield has become increasingly important amongst investors looking for balanced mid-term returns.

Downsizers

A lack of mortgage debt and high deposit costs are also acting as a trigger for downsizing. At a time when the younger generations are struggling to access or move up the housing ladder, those older owners sitting on substantial pots of equity are often the only potential source of funds.

The biggest regional pool of unmortgaged owner occupied stock, worth £337 billion, is in the South East. But the retirement and pre-retirement hotspots further from London, such as East Dorset, East Devon, Christchurch, the New Forest and the Malvern Hills have the highest concentrations of unmortgaged homes. It is not clear which pot of equity has the greatest capacity to be unlocked.

On the way up

The unlocking of equity in the wealthy commuter belt around London is in part dependent on the activity of upsizers – those with family still at home who look to upsize and make the trade-off between space, cost and travel time to work.

Since the downturn, these upsizers have been reluctant to move from London to its hinterland, reducing the pool of buyers for downsizing sellers. There are signs that this is changing, but so far the trend has been for owners to stay in London and for housing wealth to be recycled in its more affluent boroughs.

This has concentrated wealth in the capital. London’s housing stock value has risen by some £140 billion (14%) in the past five years – equivalent to the value of the entire housing stock of the North East of England. London’s residential real estate value now totals £1.1 trillion.

Rebalancing the equity

It means that over 20% of total value of the UK’s housing stock is in London – the highest share since 2000. As the economic backdrop improves, homeowners in the capital are expected to exploit their advantage and look beyond the M25 for real commuter value.

But, of course, London’s residential value is not all locked up in owner occupied stock. Some 37% of the total value of UK private rented housing and 19% of the stock sits within London. Within areas popular with younger generations, such as Hackney, private rental stock accounts for around 40% of the total housing value.

Above all there remains substantial equity in the UK’s housing market. In the past five years, the equityrich market segments have shown the strongest performance. We now fully expect this equity to be applied increasingly to other parts of the housing market in the UK over the next five years.

More will find its way into the residential investment market, to helping younger generations get on or move up the housing ladder and out into predominantly owner occupied housing in the commuter belt.

The housing market may be increasingly polarised, but its different parts are far from completely disconnected.

Taken from
Residential Property Focus Q1 2013

View our exclusive Residential Property Focus Q1 2013 video report