The Cost-of-Living Crisis – How Homebuilders Can Succeed in an Uncertain Economic Climate
The cost-of-living crisis is affecting us all. From the individual consumer right through to the business owner, the rise in the daily cost of our basic necessities has led to a reduction in spending in almost all areas of life. Whether it’s slimming down the weekly food shop, or shrinking your workforce to the minimum required to keep operations afloat, everyone is having to make sacrifices.
For homebuilders, however, this is a burden that might be harder to bear.
Our homes are one of life’s largest investments. Therefore, when people are worried about spending considerable sums of money, it is the most obvious purchase to opt out of.
So, how has the cost-of-living crisis evolved and what effect is this having on the housebuilding industry?
The Cost-of-Living Crisis Update
In January of this year, The Standard published an article stating that ‘The Office for National Statistics (ONS) said the rate of Consumer Prices Index (CPI) inflation fell to 10.5 per cent in December from 10.7 per cent, offering a further sign that the cost-of-living crisis may have passed its peak.’
However, five months later, the Independent reveals that ‘Millions of people across the UK are struggling to meet their financial obligations as the cost of living crisis persists.’ They go on to explain that, ‘With inflation still in double digits at 10.1 per cent, the cost of goods in supermarket aisles and on high street shelves remains high,’ leaving consumers stretched after a long winter of extremely high energy bills. And a recent survey carried out by Which? found that many everyday grocery products such as, meat, yogurt and vegetables, have as much as doubled in price since this time last year.
Further reporting from Forbes this month, revealed that mortgage arears and home repossessions are on the rise, while ‘the first quarter of the year found mortgage lending to first-time buyers and home movers fell to its lowest level since the early months of the Covid 19 pandemic in 2020.’
As alarming as these statistics are for businesses, consumers themselves have fair reason to feel concerned at the current financial landscape.
How are Consumers Coping with Rising Costs?
Though the government are taking steps to try to ease the burden for consumers, their Cost of Living Payments 2023 2024 scheme will help the country’s tightest budgets and will not be paid out to the majority of the population, potentially offering little in the way of support for prospective homebuyers.
This continued sense of financial burden is taking its toll.
This month, RTÉ revealed that ‘The spiralling cost-of-living crisis is having a psychological impact on people, new research from An Post Money shows today.’ RTÉ go on to explain that, ‘The research - carried out in January and May - shows that financial planning for the future has taken a back seat with people now focusing instead on managing rising day-to-day living expenses.’
While lacking the ability to put money aside for savings, it would be hard to imagine the general population being in a position to save money for a deposit.
Last month, The Guardian provided an update, as ‘economists warned the UK economy was facing stubbornly high levels of inflation that would draw an almost guaranteed reaction from the central bank.’ This could lead to a rise in interest rates, which would make borrowing even harder for individuals to justify, especially at such large sums required for mortgages.
What Effect is the Cost-of-Living Crisis Having on the Homebuilding Industry?
It would be easy to imagine that the homebuilding industry is in a state of despondency, with buyers at a minimum and sales falling through as mortgage approval ratings drop, but this is the property industry after all, and it often conjures up surprises. True to form, murmurings from certain corners suggest it's not all doom and gloom.
RTÉ found that ‘Accommodation costs also remain a key challenge facing the country with a surge in those worried about their rent and mortgages.’ In fact, the worry concerning accommodation is more prevalent than the survey carried out at the beginning of the year: ‘45% of respondents are worried about accommodation costs - rent or mortgage payments - up from 37% in the January survey. 21% said this is their main financial concern, an increase of 17%.’
However, there are areas within the homebuilding industry that are performing well.
Build-to-Rent developments, for instance, are more popular with consumers as the desire to buy a home reduces. Co-living developments are on the rise and gaining popularity in cities even outside the capital. And, against all odds, homebuilders are even reporting a recent rise in sales, as reported by Reuters.
However, an increase in interest could soon put the breaks on this upward trend.
What Can Homebuilders Do?
This is not the first time that the housebuilding industry has faced periods of economic uncertainty or a slowing property market.
What will prevail in difficult times such as these is an innovative attitude and a dedication to maintaining high standards.
One property development company that has come up with an innovative solution to helping their customers onto the property ladder, despite financial instability, is Fairview New Homes Ltd.
Through the company’s ‘Save to Buy’ scheme, customers can move into a new home, paying a fixed monthly cost. 100% of the amount paid through the Save to Buy scheme goes towards topping up the customer’s mortgage deposit.
When customers are within one month of reaching their required deposit amount, they will submit a mortgage application form to buy the property.
This initiative is a fantastic way to bring in home sales from people who would otherwise have been unable to purchase a property. And a huge benefit to the customer, who otherwise would have been unable to own their own home.
Another innovative way to remain successful in the current property market is to venture into sectors which are performing better than private sales.
The Office for National Statistics (ONS) found that, ‘Overall, UK private rental prices increased 4.8% in the year to April 2023, up from 4.7% in the year to March 2023. This is the largest annual percentage change since this UK series began in January 2016.’
With rental rates increasing and rental properties in such high demand, this could be the perfect time to consider venturing into the Build-to-Rent or Co-living sector. If you are uncertain about whether you could alter your in-house processes to accommodate this shift, you can contact us for advice, as we have plenty of experience helping developers move into different markets.
And finally, to be successful in difficult economic times, it is more important than ever to ensure you are providing exceptional levels of care to any and all of your prospective customers.
With fewer buyers in the market, you will need to demonstrate your ability to personalise the homebuyer’s experience, minimise issues and remain open with honest communication throughout, in order to secure sales rather than lose them to the competition. For assistance in ensuring you are providing unrivalled customer care, please get in touch.