New homes shortage spurs property investor interest, reports Marc Da Silva

With housebuilding levels at an historical low there is a well publicised need for many more new build homes in this country, including extra affordable homes, to help cope with a rising population and demand for homes to both rent and buy.

Unfortunately, the latest Construction Market survey from the Royal Institution of Chartered Surveyors shows that sentiment in the UK construction industry worsened during the third quarter of 2010, as a consequence of government spending cuts and a lack of mortgage liquidity. This will almost certainly mean that even fewer new homes are built in the short to medium term.

Meaningfully, the report reveals that surveyor sentiment was downbeat across all sectors of the construction industry, not just the residential division.

The overall outlook for the next year continues to look gloomy, with output expectations declining at a faster rate than anticipated in the previous quarter's survey.

A shortage of new homes to buy and ongoing difficulties as far as access to mortgage finance is concerned are forcing many would-be first time home purchasers into rental accommodation, forcing up rents and yields across many parts of the country, particularly in London.

It is little wonder that around half - 48% - of existing landlords believe that now is a good time to invest in property. It also comes as no surprise that almost three quarters - 72% - of landlords surveyed are intending to maintain or add to their portfolios over the next twelve months. Only one in 100 landlords believes it is now a good time to reduce their portfolios.

The increase in investor sentiment is undoubtedly being driven by many more people's inability to buy a new home of their own, which in turn is pushing up demand for homes to rent.

As rents and yields grow, so to will investor demand to buy homes, predominately in London, which should generate greater capital growth over the next few years, despite an anticipated market slowdown in early-mid 2011.

Savills project that the average price of a home in prime central London will appreciate by 33% over the next five years, against a UK average of 12%, and I suspect that not many people would disagree with that forecast.