Property: SRI - Making a move for thr long-term

The credit crisis brought a combination of negative economic growth, rising unemployment and a severe contraction in residential mortgage lending. The UK housing market was left facing a three-way stand-off - buyers who couldn't buy, lenders who couldn't lend and builders who couldn't build.

One of the bigger surprises in 2009 was the scale of the recovery in the share prices of housebuilders. Shares in all the housebuilding companies in the FTSE 350 index, with the exception of Berkeley Holdings, ended 2009 higher than 2008.

Taylor Wimpey, which was formed by the merger of Taylor Woodrow and George Wimpey in 2007, was the stellar performer with an increase of 280 per cent. That said, as impressive as the rebound looks, Taylor Wimpey, like many of its peers, spent most of 2009 battling to survive.

The share price fell to 3p at the worst of the slump, down from a peak of nearly £4 in 2007, and ended the year at 39p. The recovery was helped by shareholders bailing out the sector which was on the verge of defaulting on loans, by digging deep to take part in equity fundraisings. In turn, the companies were forced to write down the value of their land banks and initiate large-scale cost-cutting programmes.

Although several players have announced positive trading updates recently, referring to increased site activity and reservation numbers, the prospects of a sustained recovery remain highly uncertain. Recent data from the Royal Institution of Chartered Surveyors revealed that the numbers of properties being sold was still a third lower than at the start of 2007. Margins in the sector are likely to remain under pressure as long as there is no improvement in mortgage availability, especially for the first-time borrower.

The prospect of rising unemployment due to a further weakening of the wider economy is still a key risk to a demand-led recovery.

Despite the modest increase in house prices in 2009, mainly driven by supply issues, the current price-to-earnings ratio (4.8) is still well above the historic average of less than four-times earnings. In short, it will be some time before a return to the heyday of 2007 when there were 151,000 completions in the private sector.

The state of the housing market will be a clear battle ground during an election year. The UK is on the verge of a housing crisis, driven by a large misalignment in supply and demand. This is particularly evident in the non-private sector: affordable and social housing.

Often the terms 'affordable' and 'social housing' are used in the same context. However, affordable housing focuses more on the provision of low-cost home ownership and includes schemes that help individuals get onto the property ladder, whilst 'social housing' has increasingly been associated with homes that are let to individuals or families on low or no income. The rent in the social housing sector is kept artificially low via government subsidies and is managed by housing associations.