The lockdown that has been put in place to hold back the coronavirus until a medical means of stopping it can be found constitutes a major economic shock. Deliberately shutting down much of the economy has caused a huge reduction in the demand for goods and services as households isolate themselves at home and only consume essentials or anything that can be delivered to their door. Last week, we have published our analysis showing that UK economic activity under lockdown is down by 31%.

 

Although the government have offered up a vast package of support, this lack of demand will mean some businesses cease to operate, many workers will lose their jobs and a lot more will face a cut in incomes. Research from the Cambridge-INET institute [1] has identified that on average UK workers can expect to face a 35% loss of income over the next four months. Once households will burn through their emergency savings, they will have to make tough choices on where to cut down expenditure.

 

Housing is the single biggest expenditure item for faced by most households, which means that the shortfall in incomes has a tremendous potential to disrupt the UK’s housing markets. We forecast that UK-wide house prices will fall by 13% by the end of 2020 as a lack of transactions, high uncertainty and falling incomes take their toll.

 

Although the scale of the crisis means it will affect us all, the impending loss of jobs and incomes won’t be evenly spread across the country. The consequence of this uneven distribution will be to hit some housing markets harder than others.

 

Close to half of UK employment is spread across the manufacturing, construction, retail, accommodation & food services and other services sectors. Jobs in these industries are often characterised by high-contact intensity as workers are in close proximity to customers or their co-workers (think hairdressers or flight attendants). As a result, large parts of the customer service economy including pubs, restaurant, gyms, cinemas and other leisure facilities have been forced to close to limit the spread of infection.

 

We have analysed the regional labour markets to show which parts of the UK will be hit hardest in terms of employment losses in these industries as this gives us a good idea of the regional housing markets we can expect to be most affected.

 

Yorkshire and Humber and Northern Ireland have the highest shares of employment within these industries at 60% and 59%, respectively. Wales and the East of England are the next two regions with the highest employment shares in these at-risk sectors with 55%, and 54%. This is well above the national average of 48%. Arguably the housing markets in these regions face the biggest potential disruption due to job and income losses in the months ahead.

 

Moreover, the crisis will have different impacts on renters and those with a mortgage. The private rental sector could be particularly exposed with 47% of private renters under the age of 35 and studies showing that those under 30 are much more likely to have already lost their job or be on reduced hours.[1] Given that the average privately renting household in England already spends more than a third of their income on rent further goes to show that even a temporary reduction in incomes could lead to tenants becoming unable to pay their rent, making the private rented sector the catalyst of the impending housing crash.

 

[1] https://www.thetimes.co.uk/edition/business/despatches-from-an-economy-at-two-thirds-of-normal-3l5jvjqld

[2]  https://www.cam.ac.uk/research/news/younger-workers-hit-harder-by-coronavirus-economic-shock-in-uk-and-us

 

NOTES TO EDITORS:

 

For more information, please contact:

 

Alastair Neame            +44 207 324 2878