The house building boom in the UK has led to an increase in job creation due to construction companies hiring more employees to keep up with the demand in house building (it jumped from 62.7 to 66.6 in one month). Reports say that these have put job creation in pre-recession rates which helps the UK’s economy overall with economists suggesting strong growth in the second quarter. This housing boom is being compared to that of the post-war construction boom in the 1950s and experts have suggested that housing completions will rise to 400,000 by the end of the current decade. This has to do with supply and demand on a basic economic level. There is a demand for housing in the UK and the construction industry now has to meet that demand by supplying house building services.
At times like these the BOE encourages customers to shop around to find the best rate for their mortgage. A strong mortgage broker market, with agencies such as FirstMortgage.co.uk among others competing for consumer business – helps to reduce the mortgage interest payments, allowing customers to invest their money elsewhere.
Besides helping the economy through job creation, the house building boom has also boosted the economy by employing companies in the construction industry. For example, companies like Lagan Plant that provide plant hire solutions in the UK are seeing an increase in business since construction companies need plant equipment in order to build houses. Plant hiring services have also seen an increase due to a boom in the engineering and commercial building sectors.
Why Economists are Worried
While any boost to the economy is usually looked at as a positive thing, UK economists are worried that this house building boom will have an adverse effect on the economy in the end. The steady rise of house prices (eight percent in the past year) makes economists anxious. The problem is made a bit worse when you consider the fact that different parts of the UK are on different tracks regarding housing. While most of Britain is calm Scotland and Northern Ireland house prices are up less than one percent in a year while the south-east’s market is on the rise with prices up 17 percent in a year. This makes it hard for officials to calm down one sector without hurting the other and vice versa.
The other major concern of economists, more so than just the prices of the homes being built, is the fallout from the purchasing of these homes. According to research, Britons are trying to meet the rising prices by stretching themselves too thin. There is also the likelihood of interest rates rising which means people will have to devote more of their pay to mortgage repayments. This will cause the recovered economy to take a hard hit as borrowers will find themselves having trouble making their repayments. Interest rates have been steady since 2009 but the Bank of England has been hinting at a rise in the rates before the end of 2014. The rate of the boom and the momentum it currently has also has economists fearing a possible crash.
In order to avoid a crash and slow down the boom officials in the industry are hinting at tactics to slow down the market. These officials are hoping that by slowing this momentum the housing market can have a soft landing instead of a crash like that seen in 2007. These tactics may include raising the interest rate in order to prevent over-borrowing and decrease the amount of people getting new mortgages.
Cover photo credit: Brian Clift
