Posted by: Adam Roake | March 11, 2013

Getting Britain Building update

A couple of interesting articles have prompted me to post this update on house building numbers.  My last post included a table from Acadametrics showing transaction numbers in England and Wales 2006-2012.  That table ended in July 2012 and showed the graph on a healthy uptick.  This is the most recent update:

LSL Acad EW HPI News Release February 13.pdf

It does seem like a pattern has emerged over the last four years from January 2009, with transactions rising to just over 60,000 in the summer and dropping back close to 40,000 per month in each January.  No signs yet that the housing market returning to the pre-crunch six-figure numbers and perhaps no one should be very surprised.  Demand has been flat and is likely to remain so as the economy generally flat lines.

Savills Residential research latest blog post by Christopher Buckle, demonstrates how even if private sector housebuilding increases in output by 7% year on year, a growth rate not seen since the 1950s, then by 2017  output will still be 10,000 below the 50 year average of 140,000 never mind the additional 70,000 homes per year we need to meet DCLG’s household projection figures  (232,000 new households less 29,000 pa affordable homes, the current level of delivery, less 133,000 from Savills projections). The Savills post ends:

To meet housing need, we need to find other ways to deliver new homes.  This is likely to include Build to Rent, where significant activity is already underway.  It also requires new ways of funding affordable housing, without returning to Section 106 and renewing constraints to development viability.

However the problem is worse even than Christopher Buckle suggests.  The question he doesn’t ask in the Savills post is why on earth private sector house builders would want to increase supply at the unprecedented rate of 7.5% per annum.    I pointed out in my previous post that house builders have no incentive to increase volumes when demand is weak, as it is currently, and I have in the past  expressed my skepticism about the government’s claims to be “Getting Britain Building”.  Chis Brown makes the same point in his recent blog post and rightly goes on to to show how the current government “incentives” are ending up in the pockets of house builder managers, shareholders and their bankers.  Far from “Getting Britain Building” the government incentives are merely boosting house builders profits.   As Chris puts it:

The challenge is how to focus government action on increasing production rather than subsidy leaking out in house builders’ bonuses or for banks to deposit with the Bank of England

As Mr Buckle does, he also offers some solutions; principally government funded house building (for sale, rather than affordable rent) and somehow encouraging house builders to change their model to ‘Custom Build’.  There are of course problems with both these alternatives as there are with building to rent.  Government funded house building could be seen to be unwarranted intervention in the private sector, which will inevitably have some distorting effects on the market.  However the position is stark and decent housing is fast becoming unaffordable for many so it should be possible to argue that such intervention is necessary in the public interest.  Persuading enough house builders to sell plots rather than built homes sounds a great idea but I’m struggling to see who might go down this route and why; I’m also a little skeptical that there is a real appetite for custom build amongst the home buying public.

What is really disappointing is that whilst people in the industry, such as Chris Brown and Christopher Buckle, are pointing out the obvious truth that to the current government approach isn’t and won’t work, and that other options need to be worked up and funded, the government is blithely pretending there is no problem.  If we don’t so something different, such as the government funded housing, PRS or even Custom Build, then our children will not leave home because there won’t be anywhere they can afford to move to and maybe their children will have to grow up in their grandparent’s house too.  Or perhaps our government have a hidden agenda to return to  extended families in a single dwelling.  That is certainly where we are headed at the moment.

Posted by: Adam Roake | August 15, 2012

How might we actually ‘Get Britain Building’?

Firstly, I apologise for my long silence. My only excuse is that I’ve been busy. We’ve now completed refurbishing Abbey Chapel and we’re close to finishing the new build Live/Work house, which sits on the site of the Sunday School at the back of the Chapel. I’ve been marketing and selling the apartments, something of a career departure for me, and I’m pleased to say we’ve sold all but one of them. We achieved this through our own website, a Twitter campaign and Rightmove, and although we have two agents working on it, they’ve not yet introduced a purchaser. There is probably a post in there about how we did it and what future for estate agents but that’s for another time. This post is about what I’ve experienced in the housing market and why I’m sceptical about the government’s initiatives aimed at “getting Britain building”.

The first and most obvious obstacle we faced in selling Abbey Chapel is that there simply isn’t the same demand for new homes that there used to be. The latest monthly news release from LSL/Academetrics includes the following graph showing transaction numbers per month and underlines how demand is about half what it was before the 2008 meltdown and has been consistently at that level for four years, two Labour and two Coalition.

The number of housing transactions by month in England & Wales, 2006- 2012 (not seasonally adjusted);

LSL/Academetrics, England and Wales House Price Index July 2012

The latest RICS Housing Market Survey confirms the general gloom about demand, showing average monthly sales per surveyor down to 15.1, stock per surveyor at 68 and a stock to sales ratio of 22.2%, “the worst reading since November 2011“. The RICS paints a disappointing picture with supply trying to creep up but clearly being held back by a stubborn lack of supply.

I’ve just experienced this first hand. Our competition appears to be struggling badly; for example at the Old Brewery, a few hundred yards from us, they’ve only managed to sell eight out of twenty three units since last September. At Abbey Chapel we’ve managed to sell by building to a higher specification than our competition, pricing sensibly and putting in a lot of hard work to convert the few hot leads we’ve had into sales. It is clear that demand is weak and none of the house builders are likely to increase supply now beyond the weak level of demand they can currently see.

So turning to the government’s response; last autumn they launched “Laying the Foundations: A Housing Strategy for England“, which set out “A radical new strategy to reignite the housing market and get the nation building again“. It included a raft of measures; the “New build indemnity scheme”, which was supposed to make 95% mortgages available to buyers of new build property; the “Get Britain Building” programme which offered finance to house builders, who could not access normal finance channels for their projects; a number of programmes to release more land, such as land auctions and accelerated release of government owned land and; higher discounts to tenants exercising Right to Buy. We now have Eric Pickles putting flesh on another proposal outlined in “Laying the Foundations” to enable developers to renegotiate section 106 agreements. Apparently by reducing the payments for infrastructure deemed necessary to make the scheme acceptable in planning terms, the scheme might be “kick-started”. The FT has reported that another package of measures is on the way, which seems to revolve around government providing explicit guarantees so that Housing Associations can raise bond market finance at much cheaper rates. And today the Guardian tells us that the Lib Dems are going to use public sector pension funds to increase housing starts from the current 120,000 to 300,000, a figure not seen since the 1970s.

Regardless of the effectiveness or otherwise of these programmes, some of which the FT discusses here, they are all targeted at supply side; in essence, if we build them then people will come and buy them. Except of course it’s not “we” who will build them, it’s the housebuilding industry, whose business model is about driving down costs and building only to meet a proven sales rate; more like, if we think people will buy them, then we’ll build them. Bluntly, at Abbey Chapel we had no difficulty getting a major high street bank to fund the development and at very competitive rates; we got our initial planning permission within three months of our first meeting on site and we even got a second permission to convert one of the workshops into a live/work house, despite some severe policies against loss of employment space; these were not the difficult issues we faced. The hard work came in the marketing and sales of the finished product; suffice it to say now that we had relative few hot leads per apartment and we achieved the sales through a lot of hard work.

We do not need the supply side programmes the government is touting. These will only benefit house builders, whose costs will be reduced but who still won’t build more than they can sell; they are already making sensible profits again so why would they take on more risk for no obvious reward. The programmes also won’t persuade more people to risk all by buying a home that they can only just afford in a housing market, particularly where, for the most part, housing values are falling in real terms (and is that really what we should be persuading people to do anyway!). Instead we need some real effort put into building more homes for rent, the form of tenure which has again become the only vaguely affordable option for many people. What might happen if only rental homes were built on the government owned land, owned and rented by government through Housing Associations and built by the private sector? If government accepted a significantly reduced land value, they might even be classed as affordable rented home! Or perhaps some sensible work could be done on making rented homes a separate use class.

If we continue down the current line, we will not build enough homes in the short or medium term to enable most people to afford a decent home. House builders will only ever build what they can sell and at the moment they can only sell about 120,000 new homes per annum, something incidentally which doesn’t adversely affect their profitably. When the economy does pick up (it will because everything changes), there will be a massive increase in demand and an inadequate supply so that we’ll just have another housing boom, leaving more people unable to afford to buy but without the possibility of an affordable rental home either. Home ownership has always been expensive and the fifty year dream that we have just lived through of a democracy, in which everyone owns their own home, has left many of those who cannot afford home ownership without a decent home. Just build some more homes for rent. Do it now, while there’s limited demand for homes for sale and when the economy recovers, we’ll see what happens to the home ownership housing market. It’ll probably do very nicely and either way house builders will probably continue to make a profit!

Posted by: Adam Roake | February 18, 2012

More on Statistics

You may like to read more on this topic at these two excellent blogs, which delve a little deeper into the statistics by region. Kirkwells and Building Mag both share my concern and both wish we will be proven wrong.  Unfortunately I think Kirkwell’s have a safe bet that we won’t be.

Posted by: Adam Roake | February 17, 2012

Housing Statistics and Size of Policies

The mild spat between Jack Dromey and Grant Shapps over the latest DCLG housing figures is exasperating. Both gentlemen want more homes to be delivered but both seem stuck in a Westminster playground punch up about whose policies are bigger.

These are the actual numbers (non-seasonally adjusted to show better the annual figures) in graphic form and with tabular data below (from House Building: December Quarter 2011, England, DCLG):

The reality of the housing figures is this: we’re not completing enough homes in the right places and we haven’t been for several years. The position now is massively worse than it was before the banking crisis and it is difficult to see how the private sector will build us enough new homes when they can only sell the relatively few they are currently building. Nonetheless the DCLG spokesman seems happy to say that housebuilding is 24% higher than in 2009. It’s true that starts are now 24% higher than the in the trough of 2009 but that only takes us to 60% of the starts in 2008, so not really good enough. Also the number of starts does not equate to the number of homes delivered – the appropriate series to look at is completions. For some reason the journalists at the FT haven’t pointed this out.

The long and short is that completions (and starts) are bumping along at about 110,000 and we need to build twice that amount. Please Mr Dromey and Mr Shapps will you address this rather than posture about the relative size of your policies.

Posted by: Adam Roake | February 6, 2012

Why I’m underwhelmed by the Coalition’s Housing Strategy

I don’t think it’s just my mathematics, but I’m really struggling with the Coalition’s claims on their progress to “get Britain building”.  According to this press release, “…the Government’s action to get Britain building again will play a vital and central role in getting the country’s economy on the road to recovery”. Fair play you would have thought if only the numbers bandied around supported the proposition. These are the bullet points in which DCLG want us to take an interest:

  • That he [Grant Shapps] has already identified enough Government land to build 80,000 homes, and is now working with organisations including the BBC and Royal Mail to find even more unused sites for housebuilding – meaning Ministers are on course to release enough land for 100,000 homes by 2015
  • Details of the NewBuy Guarantee scheme to help those aspiring to buy newly-built properties to do so with just a fraction of the deposit that’s normally required; and
  • That he is devolving power from Whitehall to Town Halls, ending a long-standing “tax on tenants” in a £19 billion deal enabling councils to keep the rents they collect and invest the money in their homes.

Enough land for 100,000 new homes.

When you look at the land release strategy for say the MoD, you discover that the majority of the land is targeted for release in 2015 and is expected to provide urban extensions of several thousand homes at a time. In the real world then most of the land that is being released will not result in new homes until 2015 at the earliest and taking a realistic view on phasing, it is likely that these 100,000 new homes will be delivered over the period 2015-2025 at best. In other words we can expect that the land release proposed might deliver on average 7,000 new homes per year over the next fifteen years. Just to remind you, in December 2010 DCLG estimated we need to build around 232,000 new homes per year to deal with the increase in population, (the vast majority of which (72%) is due to simple population growth and not inward migration by the way). Should we really congratulate Mr Shapps and his team at DCLG for identifying enough land for just 3% of the new housing we need? Where does he propose the remaining 97% will be built?

NewBuy Guarantee.

The details released are:

  • New build homes valued up to £500,000 will be eligible
  • You will have to be a UK citizen to be eligible
  • The scheme will aim to help up to 100,000 borrowers to access 95% LTV mortgages

Firstly these are not details, they are the headline facts about the scheme. Details might include the cost to the applicant in terms of interest rate and fees etc or the total value the government intends to guarantee (I hope it’s not 100,000 x 95% of £500,000 = £47.5billion).

Secondly, my memory is not fantastic but I thought the banking collapse was due to banks lending too much money with too little prudence to people, who had too little equity. Am I foolish to think this scheme represents a Government subsidy to the banking system to encourage imprudent lending to people, who wish to live beyond their means?

You can’t help thinking that the housebuilder lobby have done some hard work on this one! The FT has some interesting commentary as does the Guardian.

Housing Finance Reform

Some good news, I guess, in that councils will once again have control of their housing stock, the revenue generated from it and the costs associated with repairing it. Mrs Thatcher wouldn’t have liked it but there we are. What I fail to see is how this will get more homes built so as to get “…the country’s economy on the road to recovery”. Answers on a postcard?

Mr Shapps also mentioned £420 million ‘Get Britain Building’ investment fund, which might help deliver 16,000 new homes, or about 6% of one year’s new homes requirement and the £500 million Growing Places Fund, money LEPs will hopefully spend on infrastructure projects which might impact on housing schemes perhaps. Presumably these were not headline bullet points in the press release because they are relatively minor. Finally he also announced the New Homes Bonus allocations, which will see £432million paid out to councils apparently reflecting 159,000 net additions to the council tax register. Little of this money will be used to provide further housing, nor was it ever intended to, so again I’m not sure how this policy will deliver more homes. A small aside on the maths, DCLG latest housing supply figures show that only 121,000 new homes (including reused empty homes) were delivered between April 2010 and March 2011, so it’s unclear what 24% of NHB will be paid out for. Perhaps someone can be bothered enough to put in a FoI request.

I suppose in time we will see what effect these much vaunted strategies will actually have. Of course housebuilders will eventually increase housing delivery as the economy improves but all forecasts suggest that won’t happen for several years and meanwhile government policy seems toothless. I might be surprised but sadly I’m reasonably confident I won’t be.

Meanwhile, my own housing strategy is on the verge of delivering four stunning new homes in Faversham. Do please take a look!

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