COVID-19 and working from home: the effect on the residential property market

According to the Office for National Statistics (ONS), in the period between January 2019 and December 2019, just 5.1% of the total workforce in the UK worked predominantly from home. This number had been slowly rising from 4.3% in 2015. 

However, in April 2020 alone, a staggering 46.6% of people in employment did some work from home – with 86% of those doing so as a direct result of COVID-19. 

This sharp rise in home working is not surprising, as Prime Minister Boris Johnson ordered anyone who was able to work from home to do so during the UK’s first lockdown in March 2020 – a rule that has remained in place for much of the pandemic. 

What is perhaps more surprising is the extensive effect working from home has had on the residential property market, even resulting in an unexpected housing mini-boom in the months following the easing of the first lockdown’s restrictions. 

The emergence of the housing mini-boom

The first Coronavirus-related lockdown in March 2020 was a difficult one for the housing market, as house viewings and home moves were halted and construction slowed for its duration. But as restrictions were lifted on 13th May, exceptional pent-up demand saw the emergence of what experts dubbed a housing mini-boom. 

Leading property portal Rightmove reported that, on the day the housing market reopened, their sales enquiries doubled over a 24-hour period. As well as this, Zoopla’s UK House Price Index Report found that housing demand had jumped by 88% in the week following the reopening. 

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This evident surge in demand for housing was down, in no small part, to a re-evaluation of what is needed from a home for most people. 

Throughout the pandemic, the need for a home office to work and outdoor space to exercise and obtain much-needed fresh air – when leaving the house was restricted for necessities only – caused many to hunt for larger homes with gardens and excellent local amenities within walking distance. 

Demand for larger homes on the rise

Research conducted by Halifax confirms a rise in demand for larger homes, with prices for detached properties in the UK increasing by over 5% – while the cost of terraced and semi-detached homes has risen by around 4% in the same period, and flats just 2.5%.

Further showcasing the changing requirements for housing, Rightmove’s list of most in-demand properties among renters published in September 2020 saw two-bedroom houses knock studio flats off the top spot – where they had sat in the year previous – and into eighth place. 

Finishing out the top three are two-bedroom bungalows in second place, and three-bedroom houses in third place. One-bedroom houses and one-bedroom flats have fallen from third and fourth place in 2019 to fifth and seventh place respectively, again reiterating an evidenced need for more space – particularly as it’s expected many companies will choose to adopt home working long-term, even post-pandemic. 

Government measures have provided a boost to the housing market

Amidst this increased demand for housing – and larger homes in particular – Chancellor of the Exchequer Rishi Sunak announced temporary cuts to stamp duty.

In the economic update, which the Chancellor delivered on July 8th 2020, it was announced that those purchasing a main home before 31st March 2021 would have no stamp duty to pay on homes costing less than £500,000, and purchases above the £500,000 threshold are subject to reduced rates.  

As a result of these cuts – which were intended to spur the housing market’s recovery, as its importance in the bounce-back of the UK’s economy is clear – housing demand soared further. 

In the first 30 minutes following the announcement, Rightmove reported a 22% increase in site visitors, and declared the number of potential buyers contacting estate agents about homes for sale set a new record, up 93% on the same day in 2019. 

And it is estimated that the number of residential transactions in December 2020 was 129,400 – 31.5% higher than December 2019 – as prospective buyers rushed to take advantage of the stamp duty holiday before it ends in just over one month. 

However, an extension is reportedly in talks, though nothing is expected to be announced until the Chancellor’s Budget on 3rd March.

Fuelling the housing shortage

With demand far outstripping supply even pre-pandemic, the so-called housing mini-boom has reignited the discussion surrounding the UK’s ongoing housing shortage. 

Government-set house building targets are consistently unmet, and it’s clear – now more than ever – that tackling the chronic undersupply of housing must be a joint effort between both national housebuilders and their regional counterparts. 

Small and medium-sized regional housebuilders often have an unrivaled understanding of local market need, resulting in the ability to deliver the right homes in the right locations – from four and five-bedroom family homes, to two-bedroom starter homes. 

As COVID-19 and working from home have visibly affected housing requirements, an emphasis will be placed on new-build developments offering spacious houses both for sale and to rent that are close to scenic walking routes, with high standard local amenities close by.

To help provide these homes, regional housebuilders must secure access to finance, which has been more difficult in the wake of the 2008/09 financial crisis, after banks introduced even stricter lending policies. 

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But through products such as the property-backed Innovative Finance ISA (IFISA), experienced investors can help to provide smaller housebuilders with the alternative finance needed to build the homes the UK so desperately requires. 

A lasting effect on the housing market

The lasting effects of Coronavirus have been uncertain since the beginning, as the pandemic has been unlike anything most of us have seen in our lifetime. 

For this reason, it’s difficult to predict how COVID-19 and increased home working will impact the residential property market in the long-term. 

But for the foreseeable future, homes suitable for living all aspects of life – from working and homeschooling, to exercising and leisure activities – will be a priority.