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);
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!