Analysts Warn Britain Needs 250,000 Additional Homes to Accommodate Migrants

According to City analysts, Britain must construct an additional 250,000 homes to accommodate the record influx of migrants witnessed last year.

Investec, an investment bank, stated that the already existing shortage of homes in the UK would be further exacerbated by the arrival of 606,000 migrants in 2022, leading to increased demand and subsequent rises in rent and property prices. Assuming an average household size of 2.4, Investec estimated that around 250,000 new homes would be required solely to meet the net migration of the past 12 months.

Analysts predicted that this additional construction would provide further support to the UK housing market. Simultaneously, a decrease in building rates and the stronger-than-anticipated performance of the UK economy have continued to bolster demand.

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UK Housing Crisis Deepens

Following the release of the latest migration figures, Investec cautioned that the government might need to reassess its annual target of constructing 300,000 homes due to the disparity between projected inward migration and the actual current levels.

The research note by analyst Aynsley Lammin stated, "The anticipated decline in net migration post-Brexit, and its resulting impact on housing demand, has not materialised. The high levels of net migration, coupled with a projected decline of over 25% in housing starts due to weaker demand and planning challenges, indicate that the housing demand-supply imbalance will further worsen this year. The sector has experienced favorable demand-supply dynamics in recent decades, and it appears that this situation is unlikely to change significantly in the medium term."

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New Home Target Insufficient to Meet Increasing Demand

Even if housebuilders increase their construction rates to address the recovering demand, the note added that the supply would still fall significantly short of meeting the demand. One industry insider in the housing sector claimed that government policies and challenges within the planning system made it "impossible" for housebuilders to promptly compensate for the migration figures of 2022.

Developers argue that they are hindered by the government's decision to downgrade the target of constructing 300,000 homes per year to an "advisory" status, allowing councils to disregard it, as well as environmental regulations imposed by Natural England, which impede new development projects. Overall, the Home Builders Federation suggests that these policies will result in 160,000 fewer homes being built. The industry source further lamented, "The entire system is currently in disarray."

Robert Jenrick, the immigration minister, expressed concern on Thursday regarding the strain that high levels of net migration place on public services and housing supply, deeming it "intolerable pressure."

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Increased Supply & Demand Imbalance Impact on Property Prices

The increased demand for housing resulting from the influx of migrants will inevitably put upward pressure on property prices. With a limited supply of available homes, the competition among buyers could intensify, leading to bidding wars and higher selling prices over the coming years.

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Increasing Rental Demand Impact on Rental Values

The private rental market will also be significantly impacted by increased competition between private renters, as many would be home buyers become priced out of the property market.

The influx of migrants will result in a surge in demand for rental properties. This increased demand could further strain the rental market, making it more difficult for prospective tenants to find suitable and affordable housing options. As a result, renters may experience higher rental costs and increased competition for available properties.

The impact on the rental market will also depend on the ability of the housing market to meet the demand by constructing the necessary additional homes, which currently looks highly unlikely. If the supply falls short, the rental market will become even more competitive, leading to further increases in rental costs.

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