What's going so wrong in the UK's property market?

While Britain has enjoyed an economic recovery since the financial crisis, some sectors have been left behind.

This hasn’t prevented GDP from rising, as the largest part of the economy - the services sector - accounts for the lion’s share of activity, at 78.4pc of the whole in 2011.

The IMF has confirmed that the UK will be the fastest growing G7 economy this year, forecasting that total output will grow 3.2pc in 2014 and 2.7pc in 2015.

Construction’s weakness comes despite a simultaneous rise in the prices people are paying for homes. Halifax reported on Wednesday that average house prices rose 10.2pc in the year to September.

Economists would typically expect such an increase to be associated with more production, as entrepreneurs spot opportunities to profit from the scarcity that high prices signal.

But analysis of Office for National Statistics (ONS) data by the construction procurement company SCAPE has revealed that it is the private sector which is furthest behind its pre-crisis trend. There, output remains 31pc below its pre-recession trajectory.

"SCAPE’s report does note that in the second quarter new housing output had grown by 18pc from its pre-crisis levels, but a recent uptick in construction has not made up for a sharp drop in activity immediately during the crash.

The UK’s population grew by 400,000 in 2013, an area the size of Bristol, “but housing need is still behind by 40,000 units a year”. SCAPE states that “this shortfall must be addressed”.

Economists have warned that an undersupply of homes threatens financial stability. The shortage and resultant increase in prices could result in greater volatility, if banks are left with large amount of mortgage assets on their balance sheets.

But the value of things made and built in the UK remains well below pre-crisis levels, with production and construction 9.7pc and 8.9pc lower respectively than in the first three months of 2008.

Source: http://www.telegraph.co.uk/finance/newsbysector/co...