The vast majority of large housebuilders are planning to increase their construction starts this year, while most small developers expect to decrease activity or leave output unchanged, according to new Knight Frank research.
With the UK’s economy set to grow faster than previously thought and the Help to Buy scheme creating a less risky environment, the survey results show that volume house-builders are more optimistic about committing to large schemes.
More than 100 housebuilders and developers responded to the annual survey, ranging from FTSE 100 companies to firms buildings fewer than 10 homes a year. Together, the respondents account for almost three-quarters of all homes built across the country each year.
The survey also reveals although most housebuilders are upbeat about the opportunities to build more in the coming years, the majority feel meeting the 300,000 homes per annum target “will be a stretch”.
Some 61% say a delivery of between 200,000 and 250,000 homes per annum is achievable. Just 1%, however, say it is possible to surpass 300,000 by 2022.
In contrast to previous years, the number of new-build completions has increased significantly. Back in 2013, housebuilding was in the depths of the post-crisis trough, with just 120,000 new homes built that year. Five years on, new-build completions have climbed steadily, hitting 180,000 in 2017, a 50% increase.
But respondents were divided over the impact of the ending of the Help to Buy scheme, slated to finish in 2021, with 46% saying it will have a negative impact on supply. In contrast, 47% said it would have no impact.
If Help to Buy ends, will volume builders turn to BTR?
This latest opinion survey amongst housebuilders paints a fairly positive mood, writes EG’s specialist London residential analyst Paul Wellman.
Even with economic and political headwinds, completions look set to continue on their upwards trajectory from the doldrums of 2013.
A levelling of markets between London and the South East is no bad thing, as is a softening of the very prime markets and the international taps those markets have relied on in the post credit-crunch boom.
As the report also makes reference to, which EG data can back up, GLA policy around affordable housing and a 35% threshold, aimed at reducing the use of viability assessments is also having an impact, slowly, but surely making its way in to the market.
The GLA’s intention to give clarity to developers “over what they pay for land, while simplifying and speeding up the development process” is also making its way across the country, with the draft NPPF following suit, moving away from viability assessments, say Knight Frank.
The elephant in the room, however, that won’t go away is of course Help to Buy. Although nearly half of housebuilders believe it will have a negative effect on supply if it disappears, this does not translate into a plea for it to continue.
The majority are pragmatists, believing a transition period necessary before the government funding stream is turned off. Ideas from the industry as well as further afield at what this “tapering off” looks like however, have been short on the ground, if not, completely overlooked. It is after all, much easier to turn the funding taps on than off.
With transactions across the wider market continuing to slow, housebuilders have looked towards the professionalised rental market to take stock from them, as well as increasingly forward-fund plots so as to not decrease output.
The Knight Frank housebuilding survey makes just minor references to both the recent Letwin review, aimed at increasing the speed of housebuilding and build out rates, as well as build to rent.
This is in effect another elephant in the room; the desire for volume builders to partner and sell either completed unsold stock or plots to build to rent operators. Some say their return on capital model doesn’t tally with that of the institutional variety.
Most have been sceptical at best to get in to bed with long-term capital, although the likes of Redrow, Taylor Wimpey, Barratt, Crest Nicholson, Countryside, Telford Homes, Keepmoat and Bellway, have done just that.
Berkeley will have to do the same in Canning Town with their Stephenson Street scheme, a GLA stipulation when they sold the site to London’s biggest housebuilder.
The industry awaits the tie up, and crucially what others with similar strategic land holdings across the country will do, if the current “bump in the road” becomes somewhat more bearish.
Will Letwin give further backing to the BTR sector when he reveals his recommendations? And will the trickle of housebuilder and PRS ‘tie-ups’, turn into a tide?
■ Paul Wellman is EG’s specialist London residential analyst. To find out more about the analysis he produces and to gather expert insight email paul.wellman@egi.co.uk. Or to find out how EG’s Radius Data Exchange can help you, visit http://www.egi.co.uk/radiusdx.
