Cushman & Wakefield RETHINKING: The Shape Of Real Estate 2040

Owner occupier homes continue to make up the majority share of tenures, however PRS has grown significantly as pricing pressures have squeezed affordability to record lows, accelerated further by the erosion of social housing stock across the country. Looking ahead, the same pressures are expected to persist. Population growth will continue but slow, meanwhile the average age across the country will gradually increase. Additionally, the average household size is trending downward and expected to continue to do so over the medium term, further adding weight to demand. Overall, the outlook expects approximately 4.0 million extra dwelling units will be required in the UK by 2040. While sizeable, this would represent a slight slowdown from the 4.1 million net additional dwellings that were added between 2005 and 2023 as population growth rates in the UK slow. It is important to note that these forecasts are based on the historic trend seen in the housing market and do not expect the chronic shortage of homes across the UK to ease significantly over the next 20 years. Demand for housing will still strongly outweigh supply in years to come even as more tailored housing solutions such as Build to Rent, co-living, student accommodation and seniors housing grow, leading to continued growth in rental values and house prices.

Additionally, the forecasts assume that the social rented sector maintains its 2023 level, accounting for 16.5% of the overall housing market.

Funding pressures will continue to compete with a growing public appetite for social housing delivery, alongside the persisting erosion of existing stock through the right to buy. Additionally, social housing delivery is particularly exposed to policy levers being pulled in the future which presents both upside and downside risks to social housing delivery. While the volatility of these factors puts it beyond the scope of this report, it is hoped that the trajectory toward greater delivery of social and affordable home increases. The majority of growth in dwellings is projected to be delivered through PRS. This is due to the decreasing affordability of homes, with future house price growth expected to outpace growth in disposable incomes as demand continues to outweigh supply, leading to a greater share of tenures being in rented units. Growth is expected to be seen in urban areas most prominently, with high density housing units centred around transport hubs. Green belt restrictions will continue to hem in activity on the periphery of cities, however planning regulations are expected to ease some limitations as housing pressures become even more acute.

RETHINKING: THE SHAPE OF REAL ESTATE IN THE UK

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CUSHMAN & WAKEFIELD