A weekly news summary covering all aspects of the housebuilding industry. Available to members only.
Economic News
Bank of England leaves the repo rate unchanged…
In line with almost all forecasters’ predictions, the Bank of England’s Monetary Policy Committee left the repo rate unchanged at 4.75% at its meeting on 6 and 9 May. (http://www.bankofengland.co.uk)
… as the Inflation Report hints at little change in rates for the foreseeable future
The Bank also released the quarterly Inflation Report, revealing that the MPC expects the economy to remain fairly stable over the next three years. GDP growth is expected to remain close to trend, with “the balance of risks to the downside” as consumption has fallen back more sharply than expected in February’s report. Inflation is forecast to move “above the 2% target in the near term, partly due to the influence of temporary factors” but “then eases back before settling around the target”, while “the risks to inflation are broadly balanced.”
At the press conference, Governor Mervyn King commented that: “The new central projection is a little weaker than in February, especially towards the beginning of the forecast period, though it is close to its historical average.”
The MPC note that “the rate of monthly house price inflation has been negligible” and “after falling sharply in 2004”, most housing market indicators “appear to have flattened out recently.” The MPC comment that “housing market activity may have stabilised.” (http://www.bankofengland.co.uk)
Manufacturing sector continues to struggle, casting doubt over Chancellor’s growth forecasts
The Office for National Statistics reported that industrial production fell by 0.7% over the first quarter of 2005 from the previous quarter and was down 0.8% on the same period a year earlier. (http://www.statistics.gov.uk)
HBF Comment: The fall in production in the first quarter is likely to lead to a downward revision of the preliminary estimate of Q1 GDP from 0.6% to around 0.4% over the quarter. If this proves to be correct, then GDP will have to grow at approximately 0.9% per quarter over the remaining three quarters of the year to reach the middle of the Treasury’s 3 to 3.5% target upon with tax revenues and government expenditure forecasts are based. Such a high rate of growth is extremely unlikely under current conditions (and would be high even during a boom), casting doubt over whether the government can match its fiscal rule and increasing the likelihood of some tightening of fiscal policy.
Further gloom on the high street
The British Retail Consortium announced that retail sales fell by 4.7% on a like-for-like basis in April compared to a year ago, although BRC Director General Kevin Hawkins did note that “the drop is partly exaggerated by the comparison with April 2004, when Easter fell” but figure is “the worst on record (since 1995)”. (http://www.brc.org.uk)
Government Reshuffle
Yvette Cooper is appointed planning and housing minister
Yvette Cooper has been appointed as minister for housing and planning. Cooper’s promotion, at 36, from the position of junior housing minister follows 39 year-old David Miliband’s move to minister for communities and local government and gives the office of the deputy prime minister two of Labour’s rising stars. The presence of two up-and-coming talents in the department has been welcomed by many in the housing industry as a sign of the government’s commitment to housing.
Jim Coulter, chief executive of the National Housing Federation, said: “Reversing the country’s affordable housing crisis will be an immediate priority for the new team. The fact that the ODPM has appointed two ministers widely seen as rising stars shows that the new government recognises the scale of this challenge.” (Guardian)
Home Builders welcome first ever Cabinet Minister for Communities and Local Government
HBF issued a press notice congratulating David Miliband on his appointment as the first ever Cabinet Minister for Communities and Local Government.
The press release stated: “The HBF is delighted with the Prime Minister's decision to create the portfolio, which will give housing issues an additional voice at the Cabinet table.
This change to the mechanics of Government signals Labour's commitment to its ambitious manifesto target of raising home ownership by a further one million by the end of the third term. However, this target can only be met if more people are given the opportunity to enter the private housing market.
The HBF urges the Government to implement the Barker Report and address its key finding that an additional 70,000-120,000 new private homes are needed every year in the UK if the trend in real house prices is to be reduced and the affordability of housing improved.
Many recent announcements, such as the raising of the stamp duty threshold, may help affordability in the short-term but do so by subsidising demand, not addressing the long-term undersupply of housing in the UK.”
The press release also carried the following comment from Rob Ashmead: "We welcome David Miliband's appointment as Cabinet Minister for Communities and Local Government, and believe that the creation of the portfolio underlines the national importance that must be placed on housing in Labour's third term.
The HBF urges David Miliband to modernise housing policy. Increasing supply and enabling the industry to meet people's housing aspirations more effectively is the only way to meet the Labour Party's manifesto pledge to increase home ownership by one million." (http://www.hbf.co.uk)
What’s in a name?
In one of the shortest lives recorded in Whitehall history, the Department of Trade and Industry has today re-emerged as its former self after having been renamed the Department of Productivity, Energy and Industry (DPEI) following the Election.
When asked whose “bright idea” DPEI was, Secretary of State Alan Johnson said: “I don’t know, it certainly wasn’t mine.” (Financial Times)
Company News
David McLean buys the Jennings Group
The David McLean Group has acquired the Midlands-based Jennings Group for £38.5 million, as part of its strategic growth plan. The acquisition of Jennings has given David McLean access to the Midlands market, and furthers its aim of becoming one of Britain’s top ten housebuilders by 2015. (http://www.jennings-homes.co.uk)
Miller Homes chosen for Manchester pathfinder project
Miller Homes and Inspired Developments have been confirmed as the chosen development partners for up to 2,500 new homes and mixed use schemes within the Charlestown And Lower Kersal New Deal for Communities (NDC) area, following a 26 week tender process.
Miller and Inspired will form a joint venture to regenerate more than 100 acres within the area, which is part of the Manchester and Salford Housing Market Renewal Pathfinder.
Housing Market News
Official figures show a sharp rise in house prices in March
Adding further confusion to the discussion on the state of the housing market, figures from the Office of the Deputy Prime Minister showed a 2.2% rise in the average mix adjusted house price in March, causing the annual rate of house price inflation to rise from 10.4% in February to 12.6%. While it should be noted that the ODPM figures are not seasonally adjusted, and hence a monthly rise is not necessarily significant, it is noteworthy that the annual rate rose. This data adds further uncertainty to the exact state of the housing market, with both Halifax and Nationwide reporting an easing in the annual rate of growth, and an essentially flat market, since the middle of 2004. (http://www.odpm.gov.uk)
Land Registry reports stable prices but falling volumes
The Land Registry Residential Property Price Report for the first quarter revealed that average unadjusted prices rose by 0.3% from the previous quarter to stand 10.3% higher than a year earlier, a decline from an annual rate of 11.8% in the fourth quarter. The price of detached homes rose by 13.2% over the period, while the price of flats and maisonettes rose by 5.9%.
The Land Registry also revealed that the volume of sales fell by 35% compared to a year ago, a figure remarkably consistent with both the Bank of England’s mortgage approval data and the Inland Revenue’s property transactions figures. (http://www.landregistry.gov.uk)
Other News
ODPM report completions up, but starts down in the first quarter
ODPM figures for the first quarter of 2005 show that house building completions in England (at 33,600) were 5% higher than in the corresponding period a year earlier, while starts were 5% lower at 40,300. For the financial year 2004/5, completions were up 8% in England, largely accounted for by a 23% rise in London (to 23,930), while starts were also up 8%. Wales saw a 15% rise in completions in the financial year, and a 4% fall in starts. (http://www.odpm.gov.uk)
Estate Agents criticized over pricing
A report by Which magazine found the estate agents valuations are more “stabs in the dark” rather than considered expert opinions. An experiment by researchers posing as sellers had 14 properties valued by 56 estate agents and found that in six cases the highest valuation was at least 25% above the lowest. Author Pete Tynan said “some agents give high valuations to get a customer’s business, then suggest a more realistic price once they’ve locked the sellers into a contract. (Independent)
DTI get tough on buy-to-let schemes
The Department for Trade and Industry went to court to shut down six companies selling “get rich quick” schemes aimed at residential property investors. Inside track, the UK’s biggest buy-to-let syndicate called for the government and the Financial Services Authority to expose “bad apples” as government concerns grow over companies encouraging people to become “property millionaires” at expensive seminars. (Financial Times)
Flat pack homes go up in south London
Eighteen flat pack homes are to be assembled in Camberwell, south London. The homes are built in a factory in Krakow, Poland. Six of the prefab apartments have already been assembled by Polish workers, taking just three days to put up. The remaining homes will soon be delivered complete with carpets and Ikea kitchens.
Hyde Housing Association, the developers of the scheme, said that cheap Polish labour costs mean the system costs 10% less than a traditionally constructed house, since the Polish workers are paid half the UK minimum wage. The houses are the result of a partnership between Hyde, Buma and the Polish architects PCKO. Hyde want to provide around 150 Buma homes in Britain over the next five years. (Guardian)
More houses planned for the south
Deputy prime minister John Prescott is planning another 140,000 homes in the south of England. The houses, to be built in the Solent Gateway area between Southampton and Portsmouth, come on top of 200,000 homes proposed for the Thames Gateway area. The ODPM is currently in talks with local authorities on the south coast.
An ODPM spokesman said: “It is up to local and regional planning authorities to decide how much housing they need but we accept there is a need for extra housing in the region. It is just a question of where. We are just at the discussion stage but we are very positive about the area.” (Telegraph)
Paul Samter
Senior Analyst - Economic and Policy Affairs
Home Builders Federation