Why is There a Property Boom
Updated: Sep 19, 2022
One of the hottest markets right now is the property market, with prices skyrocketing around the world, particularly in London and New York, but also in many smaller cities and towns across the UK.
We’re hearing about property booms almost everywhere we go these days, but what exactly are property booms? Are they good or bad? Is there any way to avoid them when investing in properties?
In short there is a property boom because of both supply and demand miss-matches, and an ever increasing local and global population increase, coupled with property investor demand.
In this article, we look at why there’s a property boom at the moment, whether you should invest in one and what you can do to make sure your investment doesn’t result in disaster.
What is a property boom?
A property boom, in simple terms, happens when demand for housing increases beyond supply. The increased demand causes housing prices to increase over time, creating a positive feedback loop (and vice versa).
People who sell their homes during booms are able to purchase much larger homes, which creates more demand for housing in general. This then feeds back into more people selling their houses and buying bigger ones.
What causes a property boom?
There are numerous reasons as to why there may be a property boom in certain locations. One of these, of course, includes simple supply and demand.
Too many prospective homebuyers chasing too few houses on sale can send prices soaring; conversely, an economic downturn or influx of new properties can significantly reduce demand.
Another reason could be that investors have managed to find themselves with an abundance of capital looking for an investment opportunity and therefore begin buying up property.
What does a property boom mean for investors?
For investors, it’s generally good news. However, not all booms are created equal. During some booms (like in 2008), prices rise very quickly while others (like currently) move at a more leisurely pace.
The reason for that has to do with conditions within markets and is still something of an enigma to economists. As always, there are lots of opinions out there.
As always, keep in mind that real estate investing isn’t just about macro-economic trends; there are important questions to consider such as where interest rates stand and who your competition will be when you look to purchase or sell an investment property.
What should I do when there's a property boom in my area?
A property boom is when there's an overall increase in home prices that last for multiple years. While homeowners are feeling good about their investments, renters are left to fight over a limited supply of homes.
This can create problems when people who have lived in an area for decades but don't own their homes face rising rents and housing prices.
Increasing demand and decreasing supply can lead to bidding wars and skyrocketing rents even for tenants who want to stay put.
That's why it’s important not only for you as a homeowner, but also for your local community, to support programs that help keep neighbourhoods affordable and accessible to everyone, such as rent control measures or investment in public housing.
How will I know if it’s coming to an end?
People love to speculate on booms and busts. But how can you know if there’s one in progress or coming up? In general, booms and busts are driven by high levels of speculation — when people think something is going to appreciate quickly.
If you hear your friends or family talking about how much money they’ve made (or lost) on real estate, that might be an indication that it’s time to sell (or bail).
You should also look for other signs — like increasing vacancy rates and low vacancy, increasing interest rates, rising inventory levels and falling rent-to-price ratios.
The Property Boom Bottom Line
It all starts with affordability, or lack thereof. The same reason we are having an affordability crisis in the UK is why we are having a property boom.
Availability of cash creates demand which then creates ever increasing prices that leave people with no choice but to keep buying if they want to live somewhere reasonable, not just somewhere in London but most other places around the UK too.
But at what point will it end? Where do you see property prices going from here? What things need to happen for house prices to stay where they are?
Or for them to continue increasing for another decade or so. Let us know your thoughts below! It all starts with affordability, or lack thereof.