A weekly news summary covering all aspects of the housebuilding industry. Available to members only.
Economic News
Target measure of inflation edges up, but the old measure declines
The Bank of England’s target measure of inflation, the Consumer Prices Index (CPI), edged up by 0.1% to 2.4% in August. Unsurprisingly the most significant factor behind this increase was transport costs, in particular a 3 pence per litre increase in the price of petrol over the month. The CPI is now above the middle of the Bank’s 2.0% +/-1.0% target range. In contrast the former target measure (RPIX) edged down to 2.3%, the first time is has been below the CPI (which was first calculated in 1997). Much of the fall in RPIX stems from a slowing in housing costs in line with the slowdown in the housing market. When RPIX was the target measure, the target range was 2.5% +/-1.0%.
(http://www.statistics.gov.uk)
Mixed signals from the labour market
The numbers in employment and those out of work both rose in the three months to July, leaving the unemployment rate unchanged at 4.7% by the ILO definition and 2.8% by the claimant count measure. There were also mixed signals from the earnings data, with average earnings including bonuses up 4.2% for the three months to July compared to the same three months a year earlier, a small rise from 4.1% in the three months to June. However, once bonuses are excluded, earnings rose by 3.9%, a slight deceleration from 4.0% in the three months to June.
(http://www.statistics.gov.uk)
Retail sales slowdown continues
There was no sign of a reversal in the slowdown in retail sales in the latest figures reported by the Office for National Statistics. The volume of sales was unchanged, on a seasonally adjusted basis, in August from the previous month and 0.8% higher than in August 2004.
(http://www.statistics.gov.uk)
Political Events
Building regulations revised to tackle climate change
The ODPM and DEFRA announced changes to Parts F and L (ventilation and fuel conservation) of the Building Regulations from April 2006 and the implementation of the Energy Performance of Buildings Directive aimed at tackling climate change. This will mean new homes will need to be better insulated and make use of more efficient heating systems. The revised Part L will also make air pressure leakage testing of buildings mandatory. The government sees this as a means of improving compliance with the regulations by showing where there is unacceptable leakage.
The ODPM commented: “These measures alongside changes to condensing boilers will deliver increased energy standards for new buildings, including around 27% in non-dwellings, 22% in houses and 18% in flats. On average the increase in dwellings will be 20% which reflects the growing proportion of flats being built with more people now living alone. The new measures taken together with changes to strengthen Building Regulations in 2002 will improve standards by 40%, cutting fuel bills by up to 40% for new homes built from 2006.”
(http://www.odpm.gov.uk)
ODPM publishes guidance on the development of RSS and RES
The ODPM published a “Guide to Improving the Economic Evidence Base supporting Regional Economic and Spatial Strategies”. It reflects the importance the Government attaches to the need for plans and policies to be properly based on analysis and evidence.
(http://www.odpm.gov.uk)
Company News
Redrow announces a rise in profits
Redrow announced preliminary results for the year to 30 June, with operating profit rising 14% to £151m on turnover of £781m. Redrow completed 4,372 homes, up 2% on the previous 12 months and maintained their landbank at a broadly unchanged level of 17,300 plots. The group managed a return on capital employed of 29.4%, while the operating margin on homes was 19.6%.
Despite a difficult present environment, Chairman Robert Jones expects the longer term outlook to be positive for the industry: “We continue to experience a challenging and competitive environment as the sector goes through a period of adjustment during the transition to more normal markets. In the medium term, there remains an inequality between demand for, and supply of, housing in the UK that, together with a favourable underlying macro-economic position of high levels of employment and historically low interest rates, should be supportive for our industry.”
(http://www.redrow.co.uk)
Bovis see profits decline
Interim results for the six months to 30 June saw a fall in profits at Bovis Homes. Pre-tax profits fell by 32% in comparison to the same six month a year earlier to £45.1m on turnover of £214.5m. Operating margins fell from 25.9% to 23%. Bovis completed 1,089 homes, down from 1,302 in the first half of 2004.
Retiring Chairman Sir Nigel Mobbs sees tentative signs of an improvement looking forward: “Looking forward to the second half of 2005, there remains considerable uncertainty over the robustness of the UK housing market. However, recent commentary by the Bank of England in respect of mortgage approvals indicated a 10% increase in the number of loans approved in the second quarter of 2005 compared with the first quarter of 2005. Further, survey information from the Royal Institute of Chartered Surveyors has suggested modest upturns in both the number of completed property sales and enquiries from potential homebuyers.”
(http://www.bovishomesgroup.plc.uk)
Miller announce a rise in profits
The Miller group also released interim results for the first sixth months of the year, reporting that group profits before tax rose 63% on the same period a year earlier to £38.7m. Housing profits were up by 38% to £36.6m, as operating margins rose from 13% to 20%.
(http://www.miller.co.uk)
Profits on housing operating up at Kier too
The Kier group announced preliminary results for the year to 30 June, with pre-tax profits rising by 39.8% from the previous 12 months to £60.4m. Housing division Kier Residential saw operating profits rise 7.2%to £34.1m on turnover of 220.8m at a margin of 15.4%. Completions were up 4.9% on the previous 12 months at 1,215.
(www.kier.co.uk)
Further addition to “House Builders likely to benefit from Housing Corporation money” story
The story in the September 2 News Summary listed several house builders who had qualified and have subsequently been invited by the Housing Corporation to bid for affordable housing grant. This list should have included Taylor Woodrow as well.
Housing Market
ODPM July house price figures
The Office of the Deputy Prime Minister reported that house prices rose by an unadjusted 1.1% over July, while the annual rate of price growth fell from 5.0% in June to 4.0%. Annual price growth remains positive in all regions across the UK, although prices in London only increased by 0.9% over the 12 month period. Price rises for first time buyers (FTB) continue to outstrip those paid by owner occupiers (as has been the case for the past 18 months), with properties bought by FTB up 6.0% compared to a year earlier, down from 6.7% in June.
(http://www.odpm.gov.uk)
Countryside report a rise in housing market activity
The country’s largest estate agent, Countrywide, noted an upturn in market activity in a trading statement. The company commented: “Although trading conditions experienced in July and August are often much quieter, we are pleased to report that the gradual improvement in trading conditions, referred to in the Chairman's statement at the time of the announcement of our Interim Results, on 11 August 2005, has continued. Our recent experience supports the following statement which has been extracted from the August Halifax House Price Index report dated 7 September 2005: ‘….Market activity is improving somewhat. The number of mortgage approvals to fund house purchase continued its upward trend in July, according to the latest Bank of England figures.’”
(http://www.countrywideplc.co.uk)
Other News
Housing and Planning Minister argues for more home building
Housing and Planning Minister Yvette Cooper responded to accusations that house building threatens the British countryside with the following letter in the Independent on 12 September:
“Sir: Your editorial "There are too many blots on our rural landscapes" (9 September), raises alarm that our countryside is at risk from new house building.
Of course we need strong and effective safeguards for the environment and the countryside. Those have improved in recent years, and we are going further. But we also need to build more homes not less if we are to meet the needs of the next generation. Too often in the past hype and misinformation about the countryside has been the excuse for those who want to prevent new house building. We must not make the same mistake again.
No one should be in any doubt about the level of housing need. Over the last 30 years the number of households has gone up by 30 per cent, but the rate of house building has dropped by 30 per cent. Little wonder then that house prices have gone up, that first time buyers are priced out of the market, that we face serious pressures from homelessness and overcrowding. It simply isn’t fair if the only people who can afford to buy their own homes are those whose parents and grand parents can lend or bequeath them the money they need.
We need to build more new homes. But we can do so at the same time as improving protection for the environment. Thanks to changes to the planning system, over 70 per cent of new homes are now built on brownfield land, compared to 56 per cent in 1997. And we are building at higher density too. That means it is possible to build the 1.1 million new homes currently planned for the wider South-east on significantly less land than the previous government planned to build 900,000 homes. At the same time new standards are substantially improving the environmental efficiency of development and buildings.
Your leader is right: we do need to think about the impact of our decisions today on the Britain of 2035. Future generations need a countryside to enjoy, an environment to sustain them, and they need homes to live in too.”
“Why some countries plan better than others”- Policy Exchange
Think tank, the Policy Exchange, published a report into the success of planning systems around the world: “Bigger Better Faster More – Why some countries plan better than others”, analysing planning policies in Switzerland, Germany, Ireland and Australia and comparing them to the UK environment. The report highlights the fact that local government has a much stronger role in planning policy in Germany and Switzerland, and with local tax revenues and grants linked to the local population, regions are encouraged to make themselves attractive places to live. This has led to more home building and house price stability over the last 30 years in these countries, and Switzerland’s homes are described as having become “bigger and better, allowing more and more Swiss to live in houses they desire.”
In contrast, Australia and Ireland have very centralised systems, derived from the UK’s, which restrict the supply of land, increase densities and “fail to provide the kind of homes people want.” Like the UK, these two countries have also seen large rises in house prices in the last 30 years. This report was the second in a series of three and the final instalment will look at how Britain could adopt good practice from elsewhere.
(http://www.policyexchange.org.uk)
CPRE’s Thames Gateway report
The Campaign to Protect Rural England (CPRE) published “Thames Gateway: From Rhetoric to Reality”. The report made several recommendations for the region. It calls for an immediate moratorium on Greenfield development in the area and recommends that new housing in urban areas be built at an average density of 90 dwellings per hectare. The report also calls for sufficient housing that will be attractive to high income earners and targets for the number of dwellings that will be provided for key workers and sufficient market and affordable housing for families with children.
(http://www.cpre.org.uk)
Paul Samter
Senior Analyst - Economic and Policy Affairs
Home Builders Federation
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