Pent up demand likely to play a part in recovery
“An important underlying factor which we expect to play a part in the recovery of the market is the likely build-up in pent-up demand since 2003. Since then, first-time buyers have made up only 33% of transactions, compared toan average of 46% since 1979. If one assumes that the same proportion of first time buyers would have liked to have entered the market, it is possible to work out how many have been “locked out”. This adds up to about 750,000 buyers over the 2003-7 period, which is more than the total number of house purchase transactions expected in 2008. Clearly this estimation is fraught with uncertainty and sensitive to assumptions, but it does appear likely that a substantial pool of pent-up demand has been building up, which could make its way back into the market when affordability improves and economic conditions and house price growth expectations stabilise.
Moreover, the severe cuts in house building activity since late 2007 suggests that once housing market activity does begin to rise again, the longer term supply pressures highlighted in the Barker Review could re-emerge relatively quickly.
