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Jul 18 – Housing still broken

The number of new housing starts were flat in 2017, according to finalised figures from the Office for National Statistics.  The Bank of England has suggested expectations are that Q1 2018 figures will show a slowdown, in part due to adverse weather and the so-called Beast from the East.  Indeed, early indicators from the NHBC show a substantial drop in new starts in the first three months.

The second quarter also saw Sir Oliver Letwin publish the first of his findings on the housing development market.  In the interim report, he found it takes over 15 years to complete home building on some of the country’s biggest sites.  The larger the site, the smaller the percentage of development is built each year. Letwin also identified a 40 per cent lapse in planning permissions.  And in London, 270,000 residential planning permissions remain un-built.

The last housing minister James Brokenshire called it ‘frankly, not good enough’.  In his second interim review, published at the end of June, Letwin said he had found no evidence of developers land-banking.  However, as his earlier comments suggest, he repeated that large builders are controlling the build-out rate of new homes.  This, developers argue, is to maintain a commercially viable model.  It also seems fair to insinuate that restricting the supply of new homes keeps a floor under pricing, which is of benefit to development companies.  If this is not land-banking, then perhaps the definition requires a rethink.  Builders are controlling supply to control pricing and values.  If the argument that building more homes is the best way to ease the UK’s affordability crisis, then the developers’ stranglehold on the market must be broken.  It will be interesting to see what Sajid Javid and Philip Hammond do with his final report due before the next budget.

Circumstances in the resale market are not much better. The May RICS UK Residential Market Survey revealed a few signs of life as homes started to come back on to the market, but overall activity remained flat and, according to RICS, ‘is looking unlikely to gain any impetus in the near term’.

New instructions in May turned positive for the first time in more than two years however, although the numbers of houses coming on to the market has increased marginally, average stock levels on estate agents’ books across the UK were steady at 42.5 – still close to an all time low.  When contributors were asked to compare appraisals that were undertaken in May with the same period last year, 18% more stated they were lower on a like for like basis.  This does not appear to bode particularly well for the pipeline going forward, noted RICS.

If we are to get the real step-change in building that all agree is required then the new Housing minister needs to take a new look at initiatives.  Builders desperately want a new version of Help to Buy to take them beyond 2021.  This must come with the condition that they properly sort out the leasehold houses issue which is leaving many as mortgage prisoners as the reality of the lease increments become clear.

The final part of the current jigsaw is the Buy-to-Let market.  I am concerned that the income tax changes due to bite more deeply over the next few years will force many private rental properties to be dumped on the market.  This is what the other policies are designed to avoid.  Philip Hammond needs to defer the tax increases due from April 2019 onwards until we see the full impact of the changes made already to this market.

Robert Sinclair
July 2018


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