British industry is getting increasingly spooked by the high costs of housing and its propensity to erode the UK’s – and especially London’s – competitive edge, both at home and abroad in the global market, as employees struggle to afford a house.
Ahead of the upcoming 2015 general election, the major political parties are ramping up their campaigning efforts, which has the CBI concerned.
According to the CBI, property prices in the UK have been rising steadily. Housing transactions are “picking up firmly” even if they are still 29% below their pre-crisis peak in 2006. London property prices are 25 percent over their peak in 2008, but prices for the rest of the UK (without London) are still 2 percent below their pre-recession high.
Inflation in the housing market is predicted to reach 8.2% this year (up from 3.6% in 2013) and 5.1% the next year, according to the report.
“We have to be alert to the risks posed by unsustainable home price inflation, and the [Bank of England’s] Financial Policy Committee is set to intervene when necessary,” said John Cridland, the CBI’s director general.
“As yearly house price inflation figures have hit double digits on certain metrics, housing has returned to the focus. Even while sales of single-family homes are still down by about 30% from their 2006 peak, the trend is encouraging.
“Although London house prices have risen 25 percent above the 2008 peak, this has in part been fuelled by foreign cash buyers. Outside London, prices remain roughly 2 percent below peak estimates with an even wider disparity when you move outside the South East.”
Katja Hall, the CBI’s chief policy director, said: “We’re a year away from the general election and politicians must stick with what’s working. That requires the incoming administration, of whatever colour, keeping the deficit reduction agenda on track. It must also face the UK’s economic issues and not shirk the tough decisions, like as restructuring public services.
“Political positioning must not be allowed to stifle investment, whether it’s an unrealistic immigration target, unjustified interventions into specific markets, flirting with leaving the European Union, delaying vital long-term infrastructure projects or restricting labour market flexibility.
“Pre-election pledges should not deter overseas and home-grown investors and entrepreneurs, nor limit a future government’s ability to deliver prosperity in the UK.”
High housing costs are considered the second greatest barrier to competitiveness in London by businesses. About a quarter of the CBI members polled in the most recent KPMG London Commercial Survey said it diminished London’s status as a global business hub.
A senior policy advisor at the CBI told Shelter’s blog yesterday that CBI members don’t seem to care about how many new homes we can’t build fast enough, and how that affects the price of homes.
Because of the shortage of new homes to buy and the high rents in London and the surrounding area, skilled people who want to establish a base in the city are being discouraged from doing so.
More than 60% of those polled stated that rising housing costs and a scarcity of qualified candidates are deterring employers from hiring entry-level workers, while 55% said the same about hiring mid-level managers and 23% said the same about hiring senior staff.