Falling levels in house building

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by Kay Murchie

A study by Hometrack, the housing intelligence business, has established there is no end in sight to the affordability issues in the UK property market.

The organisation said falling levels of house building means there is an increasing possibility that in 5 years time, we could be building fewer homes than we are today.

Hometrack has established that new housing starts in England have already fallen by 10% over the last 18 months and highlights that the credit squeeze, together with weaker conditions in the property market, means this trend may continue over the next few years.

Richard Donnell of Hometrack said the decline in housing starts comes at a time when the primary focus is on increasing levels of house building as a means of combating affordability problems and helping those priced out of the market.

The key to growing housing output is getting more land into the system, added Mr Donnell.

However, there is limited understanding within the Government as to how land for new housing feeds into the market and how this can encourage greater supply.

Aside from the change in demand, Hometrack’s report highlights three factors that will influence the volumes of homes being developed over the next few years. These are how fast developers can react to the changing nature of demand, how landowners view the downward pressure on land values and how developers are able to cope with new build planning policy as set out by local and national Government.

The weakening in end sale prices is bound to put a downward pressure on land values. Lower land values will support scheme viability but the land market is very similar to the housing market with lots of owners sitting on land they do not need to sell.

Left to its own devices the market may sort itself out in 2 or 3 years but a swift response by local planning authorities could make an important difference, said Mr Donnell.

How developers fare will largely depend upon whether their management teams foresaw the current problems and had a fall back strategy in place. Investors took some developers down something of a blind alley which they now need to reverse out of, concluded Mr Donnell.

Housebuilders Bovis Homes, Redrow and Taylor Wimpey have all recently reported losses and said the markets in which they operate remain challenging.

After a decade-long housing market boom driven by low interest rates and high employment, Britain’s housebuilders are now set to build fewer homes following tighter mortgage lending and increasing prospects of a house price falls and transaction volumes.