A weekly news summary covering all aspects of the housebuilding industry. Available to members only.
Economic News
MPC downgrades the short-term outlook, but is still positive further ahead
The Bank of England’s August Inflation Report showed that the MPC has become more pessimistic on the short-term outlook for economic growth, in comparison with the previous quarter’s report, but more optimistic further out. The central projection from the MPC is that “GDP growth remains a little below trend in the near term, but thereafter picks up as the influence of recent movements in asset prices is felt. Inflation moves above the 2% target in the near term and then eases, reflecting in part the transient impact of the higher level of oil prices. It then moves above target again as growth recovers.”
The MPC considers that the risks to both the inflation and GDP projections are marginally on the downside, with the outlook for consumption the most significant downside risk. The other major uncertainties were the outlook for the oil price (with upside and downside risks equally weighted) and how much the recent rise in inflation has been due to temporary factors (in particular the oil price), which would only have a short-term impact, and how much it is down to underlying factors, which are less likely to dissipate quickly.
The Report was generally interpreted as adopting a “wait and see” approach to monetary policy and dampened market expectations of a further rate cut this year.
Governor Mervyn King also criticised the Treasury’s “reinterpretation” of the economic cycle: "The Bank and the Treasury have a very different view about how we think about the cycle. We don't like this fixed dating [of the cycle] and we have a different way of thinking about the productive potential of the economy and how it evolves... I'm not even sure whether it makes sense to think about a cycle as this well-defined phenomenon… If you change your view about what happened seven or eight years ago it doesn't change the underlying fiscal position.” (www.bankofengland.co.uk)
BRC calls for more rate cuts following worst July in 10 years
The British Retail Consortium reported that retail sales were 1.9% lower in July than the same month a year ago on a like-for-like basis, and rose by 2.0% on a total sales basis. Director General Kevin Hawkins commented: “Despite a relatively short burst of good weather and continued discounting by many retailers, the downward trend in like-for-like sales has worsened - in fact this is the worst July since 1995. While the recent cut in interest rates by the MPC is obviously welcome, it will take several months for there to be any significant effect on consumer spending: more cuts are needed between now and Christmas.” (www.brc.org.uk)
Political Events
Details of HomeBuy Scheme announced
The ODPM announced more details of the HomeBuy, which aims to help around 100,000 households to own their own home by 2010. There will be three HomeBuy “products” based on shared equity:
Social HomeBuy: There will be a minimum initial purchase of at least 25 per cent of a home. The remainder of the equity would be held by a housing provider. The provider will be able to levy a charge of up to 3.0% on their equity. A lower target average for the charge will be set at 2.75%. Buyers under the scheme will also receive a discount on the total purchase price of their home. At least initially, there will be some flexibility in the precise terms of the scheme to ensure that providers can make it work both for themselves and for buyers, and to trial different products. Receipts generated by Social HomeBuy sales will generally be used to provide more social lettings. A small proportion may be spent on other housing related projects.
Open Market HomeBuy: Purchasers will be expected to raise finance to purchase around 75% of a home on the open market. A housing provider will provide a loan for the balance required. A small charge may be made on the equity share held by the provider. The scheme will be available to eligible key public sector workers, social tenants, those on housing waiting lists and other first time buyers identified as priorities by Regional Housing Boards. The definition of a key worker will be extended from the one currently used.
New Build HomeBuy: There will be a minimum initial purchase of at least 25% of a newly-built home. A housing provider will hold the remainder of the equity. The provider will be able to levy a charge of up to 3.0% on their equity. A lower target average for the charge will be set at 2.75%. The scheme will be open to the same groups eligible for Open Market HomeBuy. (www.odpm.gov.uk)
£5.5bn made available for Regional Housing Pots
The government announced how the £5.5bn for housing investment via Regional Housing Pots will be split for affordable housing to reduce homelessness and help get people on the property ladder over the next two financial years. £3.9 bn will be for social rented housing and low cost home ownership, the remaining £1.6bn will be for local authorities to improve existing housing, with £700m to support the drive to bring all council houses up to a “decent standard” by 2010. (www.odpm.gov.uk)
Housing market
Official figures show continued fall in annual rate of house price inflation
The Office of the Deputy Prime Minister revealed an unadjusted rise in house prices of 0.8% in June, although the annual rate of house price inflation fell from 6.0% in May to 5.0% in June. In terms of the regional breakdown, London saw a modest increase in the annual rate of price growth from 1.6% to 1.8%, while all the other regions saw a decline in this measure. House price inflation has now dropped below 10% per annum in all of the English regions, although remains above this mark in Wales, Scotland and Northern Ireland. (www.odpm.gov.uk)
Company News
Morgan Sindall profits boosted by affordable housing
The Morgan Sindall group announced interim results for the six months to 30 June, with profits before tax up 39%, compared to the same six months a year earlier, to £18.2m. Much of this success was driven by a record profit of £7.7m from Lovell, the affordable housing division. However Chairman John Morgan commented: “Social housing is great now, but there are a lot of people coming onto the market. We are looking to grow but we are also being more selective. This market will not be here forever.” (www.morgansindall.co.uk)
Other News
Private housing activity up in the second quarter
Data released by the ODPM revealed an increase in private house building activity in England in the second quarter. Private housing completions in England reached a provisional 36,662 in the quarter (up 3.5% on the same period a year earlier), while there were 44,641 starts in the same period (up 2% on a year earlier). Revised figures show that there were 136,171 completions in England in 2004 (up 4.2% on 2003) and 162,135 private starts (up 10%).
Once the social sector is included, total starts rose 2.1% and completions 3.5% in England in the second quarter in comparison to a year ago. (www.odpm.gov.uk)
Nine builders meet the £60,000 house challenge
Nine builders have managed to meet the Deputy Prime Minister’s challenge of designing a quality home for a cost of around £60,000. The nine (Barratt Developments Ltd, Geoffrey Osborne Ltd, George Wimpey UK, Northern Edge, Redrow Plc, William Verry Ltd, SIXTYK Consortium, The Countryside Consortium; and Westbury) will now be invited to go on to the final stage (three) of the competition and bid to develop homes on ten public sector owned sites. A further seven entrants (Accent Group, GENTECT Homes, Linden Homes, Persimmon, Taylor Woodrow Developments Ltd, The Forward Group, and The Super E® Partnership) were commended for their entries.
English Partnership’s Director of Corporate Strategy Trevor Beattie commented: “The best is yet to come. These are strong proposals. Now the stage 2 winners will have the opportunity to develop their designs further with the aim of winning the right to build the 1,000 homes spread across the different sites in stage three. The lessons learnt about good design, quality and construction efficiency start here and will be rolled out to benefit many more homes in the future.” (www.odpm.gov.uk)
Mortgage lender sees market upturn
Specialist mortgage lender Bradford & Bingley has reported a 6% increase in profits after a rebound in the buy-to-let mortgage market in the second quarter. The company said profits rose to £147.9 million for the first six months of the year from £139.4 million. Underlying profits rose to £150 million.
Chief executive Stephen Crawshaw said: "While the outlook in the first quarter was uncertain… people are much more confident about the second half. I think we have seen the trough.” (www.bbg.co.uk)
New research into the impact of Part L
TEHVA (The Electric Heating and Ventilation Association) members have just completed research into the impact of Part L of the Building Regulations 2006. The results are very positive for house builders who recognise the benefits of specifying this low cost, labour saving option.
Members have trialled the improved new-build target carbon emission rating method from the Office of the Deputy Prime Minister (ODPM) alongside a draft version of the new SAP (Standard Assessment Procedure). They found that when Part L is implemented in 2006, housebuilders can still confidently specify electric heating in a range of design patterns - from pure panel heating to a more traditional storage and panel mix.
A TEHVA spokesperson says “New build flats and prestigious apartment blocks are a core market segment for electric heating manufacturers. Now that Part L allows for whole block compliance assessments, specifiers have the flexibility to trade off measures within a whole block which keeps electric heating as the best and least cost option for flats and apartments”. (www.beama.org.uk)
Young renters shun the property ladder
According to the research by General Motors Acceptance Corporation - Residential Funding Corporation (GMAC-RFC), a large mortgage lender, among one in 10 young people do not intend to buy a property for at least another eight to 10 years. Living in a desirable location in the meantime is vastly important to them. 68% say they prefer to rent because it allows them to live close to their friends. A further 61% say renting allows them to live in a better area than they could afford to buy in. Marriage and starting a family is also being delayed among young people so there is now an extended time in the average 20- to 30-something's life when they want to live with friends - six in 10 non-homeowners said it was their main reason to rent.
More than half (53%) of those young renters questioned are comfortable with delaying their first step on the property ladder until they are over 30. A further eight in 10 prefer renting because it means they are not making a big commitment. 72% believe renting provides the possibility for future travelling and a further 71% believe it gives them more freedom to move jobs. (Telegraph)
Paul Samter
Senior Analyst - Economic and Policy Affairs
Home Builders Federation
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