- Chancellor Sunak announced housing sector stamp duly holiday till 31 March 2021, when the industry was expecting it for only six-months
- Despite the increase in business activity levels in the housing construction sector since the beginning of May, the price of houses had been falling consistently
- Should there be a weakness in the revival of this industry, the effect of that on the unemployment situation in the country would be catastrophic.
After much lobbying by the housing construction sector, the British government finally announced a stamp duty holiday on house purchase transactions for a period of eight months till 31 March 2021. The decision which would potentially translate into house owners saving up to £15,000 in their purchases has brought back a lot of inquiry interest to the estate agents counter. The enthusiasm on the faces of the housebuilders is evident, but there are now increasing concerns that this stimulus benefit may be eaten up by competitive house bidding by builders, which would end up hurting the industry altogether. The stamp duty cut which has been announced for buyers in north Ireland and England will not be much beneficial for wealthy house buyers but will benefit home buyers at the lowers end of the market, where maximum volumes are expected to be generated.
The housing sector was badly in need of a demand boosting stimulus measure
As the housing sector came out of the lockdown, it was one of the few, which showed the maximum bounce back momentum. For the month of June, the IHS Markit/ CIPS construction industry PMI showed a number of 55.3 on a 100 pointer scale, where figures below 50 points show contraction in business activity, and a number above 50 denotes expansion in business activity. Incidentally in the month of May, the index showed a figure of 28.9, meaning that in the month of June the index made a whopping 91.3 per cent jump.
However, despite the surge in activity levels, there were concerns among builders that the adequate demand for houses may not come forth in subsequent months. While they were working to clear off the existing backlog that they had, an urgent measure was required to prop up demand levels facing the industry; otherwise, the revival which has brought about much enthusiasm to everybody's minds would be nipped in the bud.
To see a sustained revival in this industry was also of much interest to the government. The housing industry is one of the largest employers in the country, and a significant amount of its people had been put under the benefit of the governments furloughing scheme. Should there be a weakness in the revival of this industry, the effect of that on the unemployment situation in the country would be catastrophic. The current stimulus measure would thus ensure that enough demand force is generated for this industry to aid it in its recovery. During this eight-month period, other parts of the economy would also have recovered sufficiently bringing up the demand for houses to sustainable levels.
Construction activity has been showing revival since the past few months despite falling prices
Despite the increase in business activity levels in the housing construction sector since the beginning of May, when the lockdown was relaxed, the price of houses had been falling consistently. The Halifax housing price index for the month of June reported that prices actually dropped 0.1 per cent in the month compared to the previous month despite the overall enthusiasm. These two paradoxical phenomena of falling prices and increasing activity levels have made the industry as well as the government the worried lot. It can be easily deduced that without sustained demand at some point of time or the other there will be a big crash in the housing sector which will not only be detrimental for the industry but will also badly affect the entire economy.
Thus a measure to spur up demand for housing was of more importance to the industry than loans or grants, or employee furloughing measures. Consumer sentiments are a big element in-demand dynamic of the housing construction sector, and an improvement on this front will also trickle down to other industries who would very well make better of it for themselves.
Changing behaviour trends of homebuyers post the lockdown.
A changing pattern in the behaviour of buyers has also been witnessed post the opening of lockdown. Estate agents who have been handling queries of prospective house buyers have been witnessing an increasing trend of people wanting to move out of big cities, to small cities and suburban areas. The behaviour, though, has not been having much impact on the total demand for housing in the country as a whole but is certainly resulting in weakening of prices of housing properties in cities like London.
The pandemic has changed the way people look at life and their futures in more than one ways. What impact can a congested and claustrophobic lifestyle have on oneself in the event of a pandemic was clearly evident in the past few months. Second, the ability to live a high-quality life while not compromising on one's productivity levels through Work from home arrangements has also prompted many people to contemplate making the transition after the opening of the pandemic.
Incidentally, this phenomenon is only restricted to the housing construction industry and the demand for commercial buildings in London and other metropolitan places remains as it is.
The government's decision to bring about a stamp duty holiday was the right decision at the right time. The housing construction sector is a very important sector of the British economy. The fortunes of this industry not only impact the prosperities of other industries, but it also impacts the consumer sentiments and behaviour of the country overall. The current endeavour of the government to bring about a quick bounce to the economy from the clutches of the pandemic depends to a large extent on this industry. From hereon the government and the industry together should make an all-out effort to bring back as many people out of furlough as possible, so that the burden on the economy gets lessened to some extent.