How Is The Energy Crisis Impacting The Property Market?

The current energy crisis will have direct impact on the property market.

A surge in wholesale prices and a supply shortage have increased the price of gas significantly.

How does the gas crisis affect the housing market? This blog post explains.

Why is there an energy crisis?

According to Oil and Gas UK, the cost of gas has risen by 250% since the start of the year. Since August they have gone up 70%. 

The surge of prices in the UK is a reflection of gas prices globally. After recovering from the pandemic, countries are rebuilding their economies. This has led to a decrease in gas capacity.

Due to high demand from Asia there is less liquid natural gas reaching Europe.

According to the Energy Saving Trust, “The problem was made worse by renewable sources like wind and solar producing less power and cold weather during the winter months forcing more people to turn their heating up.”

By the end of December last year a total of 28 energy companies had gone bust, including bigger companies like Bulb, affecting over 2 million customers.

More recently, Russia’s invasion of Ukraine has threatened supplies and driven up prices further. Russia supplies the EU with 40% of its gas, making it one of the world’s largest producers of oil and gas.

What was the impact of the energy crisis?

The Office for National Statistics reports, “The wholesale price of gas (system average price) in January 2022 has almost four times higher than in early 2021.”

Data from the National Grid has found that the seven-day average price reached highs of 12.8p per kilowatt hour in December 2021. This was more than eight times higher than the same period during the previous year.

The UK imports around 50% of its gas from international markets and most homes in England and Wales are heated by mains gas supply.

Gas is also used to fuel around a third of the UK’s electricity generation so rising gas prices have in turn led to rising electricity prices.

What is the implication of the energy crisis on property?

Property reporter has predicted a number of scenarios of the impact of the energy crisis on the property market.

1.) Workers could offset some energy bills by spending more time is the office, although that would add to other expenses such as commuting and childcare which for many would exceed the energy savings.

Perhaps more significantly, however, with the economy slowing as a result of the crisis, concern over job security is likely to encourage more people to ensure they are visibly ‘at work’ in the office.

2.) The prospect of embattled consumers and rising business costs bodes poorly for consumer facing real estates such as retail, hospitality and leisure. These sub-sectors face a third tough winter in a row after the difficult trading conditions caused by the pandemic. This could mean that there is a shift to discount retailers and there could be opportunities for reduced commercial rent.

3.) The industrial sector faces some contradictory forces as a result of the energy crisis. Manufacturing firms will face larger power bills, causing them to reduce costs elsewhere, which could make them more rent sensitive. On the other hand, consumers may be more inclined to seek bargain prices online, thus supporting demand for distribution warehouses. 

4.) Another issue is the impact on the exchange rate. The pound has been under pressure against the US dollar and other major currencies. Further, additional borrowing created by finding the price cap could prompt currency markets to reassess the value of Sterling.

What does the current cost of living crisis mean for rents?

According to Government research, “Private rental prices grew by 3.2% over the year to July 2022. This is the largest annual growth recorded for the UK in the ONS’ series, which goes back to January 2016. Growth was highest in the East Midlands (4.3%), East of England (4.1%) and South West (4.0%), and lowest in London (2.1%).”

What are the opportunities for property investors during the current climate?

The rise in energy prices, high inflationary pressure and effects on consumer spending provides opportunities for property investors.

Less competition in the housing market presents opportunities to obtain properties at better value and reduces the chances of being outbid.

As people evaluate their finances, it creates the likelihood that more people will be looking for rented properties as mortgages become more difficult to obtain. This creates increased demand in the buy-to-let market.

In recent recessions there has also been a shift to consumers looking at serviced accommodation. Total tourism revenue increased 12.6% in the period 2007-2011 with staycation breaks increasing 5.6%.

Commercial property is also likely to be more readily available and affordable.

For more information on how the current economic situation affects the property market click here. 

To read the Government’s full economic outlook on the cost of living crisis click here.

Touchstone Education has a wide range of property investment courses open to all interests, levels and experiences. Wealth Through Property is the ultimate 2-day property course, which guide students in the wide range of income streams available in the market and how to get involved and take property portfolios to the next level.

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To find out more information call our team on 01302 897131 or email office@touchstoneeducation.co.uk.