A weekly news summary by Pierre Williams, the HBF's head of media, covering all aspects of the housebuilding industry. Available to members only.
Buy-to-let falters
New mortgage lending for buy-to-let has fallen for the first time. The Council of Mortgage Lenders says lending was 18 percent down in the second half of 2004 compared with the first half - the first fall since 1999 when data on what was then a relatively new type of lending was first compiled. Mortgage lending for general home purchases fell by a much more moderate 3 percent over the same period. A feature of the recent buy-to-let market has been the focus of interest on smaller units as investors try to capitalise on aspiring first time buyers inability to get a foot on the housing ladder. This now seems to be fading fast.
Overall, the figures have prompted a wave of comment on the prognosis for the housing market as a whole. The pessimists say such a significant fall in buy-to-let will feed through to the whole market causing a sharp fall in prices as amateur landlords catch fright and start trying to dump their stock. The optimists refute this, citing that research suggests investors are in it for the long term. (All media)
HBF note: Whether the 18 percent drop actually represents a real loss of confidence or simply an appropriate adjustment to a steadier market isn’t really explored. It might be the end of the boom but that doesn’t mean the end of a healthy and stable market. Indeed it might help realise it. In any event, the pent up demand from FTBs (even if they’re not committing yet) is still there and that suggests that the industry’s focus on smaller units is the right strategy both from a business and political viewpoint.
….however, NAEA claims offloading is well underway
Following the buy-to-let mortgage figures, the National Association of Estate Agents has claimed that offloading is well underway. It says the number of homes for sale at the average agency has more than doubled over the last year - from 38 in January 2004 to 75 last month - while the number of buyers has fallen from 564 to 359 over the same period. And while the NAEA reported a price rise of 0.1 percent in January (in contrast to the RICS, below) it said FTBs had fallen from 16 percent of sales in December to just 11.7 percent last month. (FT)
Prices continue to fall - moderately
Prices fell for their sixth consecutive month in January according to the Rics - but at a slower pace. Rics said 36 percent more surveyors reported price falls than rises in January, compared to 38 percent in December. The Government’s house price index says prices fell by 0.7 percent (£1,220) in December. (Its January figures have not yet been published) Rics is confident that prices have bottomed out. A spokesman said: “It has most likely already hit its lowest point and we should see a recovery in activity.” (All media)
Bank’s interest rate dilemma deepens
The housing market may be slowing down, but hopes of an interest rate cut look even more remote this week with new figures showing inflation sticking at 1.6 percent - well above the Bank of England’s forecasts - and a host of other data, including a further fall in High Street activity, painting a mixed and confusing picture of the future direction of the economy. Longer term, the Bank expects inflation to increase, with Monetary Policy Committee, Stephen Nickell warning that the era of low inflation (and by association low interest rates) will soon end. (all media)
Budget could offer FTB assistance
Relentless media pressure on Government to ease the plight of first time buyers (FTBs) may pay dividends in the forthcoming budget. The Guardian reports that tax cuts aimed at helping FTBs, most likely through raising the Stamp Duty threshold, are a real possibility. It is thought that a Stamp Duty reappraisal that would greatly help FTBs would cost the Treasury about £400 million a year. This needs to be contrasted to total residential Stamp Duty receipts that in 1997 were £675 million but soared to £3.8bn last year. (Guardian)
HBF note: Whether the Guardian knows something that the rest of the media doesn’t, is unclear. Its story might be simply an educated guess based on the increasing pressure, initially from the media, and subsequently taken up by the Conservatives, for government action on this issue. Pressure to help FTBs is also coming from a number of other sources. Mortgage lenders have coming under fire this week for a 40 percent rise in fees over the past six months alone as they try to recoup profits lost on cut-price deals, whilst new figures show that more than 50 percent of personal bankrupts are under 30.
Housebuilders rush to fulfil prescott’s affordable housing drive
Quick thinking smaller and middle-sized listed housebuilders and contractors have been the first to respond positively to John Prescott’s “challenge” for £60,000 homes. And their share prices have rocketed as a result. With government cash available for a host of development projects - from large-scale refurbishments, new build for housing associations, and PFI for social housing - Galliford Try, Gleeson, Lovells, Rok Property and Kier have all been identified as keen to work with government. Since the start of the year their share prices have risen 21 percent, 30 percent, 17 percent, 11 percent and 19 percent respectively. (FT)
Skills crisis worsening
The skills crisis is getting worse in almost all business sectors - but construction is suffering most. This are the findings of the latest survey by the British Chambers of Commerce which found that the proportion of companies having problems getting sufficient staff of the right calibre has jumped from 29 percent to 43 percent in the past ten years. An increasing number are looking abroad to fill the gap as Government initiatives to address the problems have had little effect.
Housebuilders don’t deserve bum reputation
We might be used to being the City’s lepers thanks to the cyclical housing market. But we don’t deserve our reputation that - in all probability - is down to institutional investors’ inability to keep in tune with the housing market cycle. When housing was roaring two years ago, housebuilder stocks were cheap as chips. Now, with a slowdown in progress, stocks are at an all-time high. But the reality is that even at these current highs, share prices remain cheap. (Sunday Times)
HBF Note: Merrill Lynch said the same thing last month (see weekly news summary, 21 January) The fact is that the under-valuation message is getting through to the media and we can only try to keep the momentum going in the hope that the institutions pick up on this. But let’s not get too excited. As John Waples, the writer of the above article mentions, the institutions don’t have a good record of being in tune with the market. Remember the Pru and others snapping up every independent estate agent they could find at top prices in the late ‘80s only to offload them at knockdown prices a couple of years later as the market slumped?
Housebuilding stats: latest starts and completions
These are the latest housebuilding figures from the Office of National Statistics for the last quarter of 2004. In essence, starts are up substantially - but this isn’t feeding fully through to completions.
England:
Last quarter 2003:
· 40,300 starts - up 13 percent on the same period of 2003
· 42,100 completions - level with the same period of 2003
Full year 2004:
· 175,300 starts and 152,600 completions, up 10 percent and 6 percent respectively on 2003
NB: Most of the increased housebuilding was in London where there were 24,100 completions - up a whopping 31 percent. By contrast, outside the capital the annual increase was 3 percent
UK:
Full year 2003/4:
· 212,000 starts and 190,000 completions - up 8 percent and 3 percent respectively on 2002/3
England regions:
South East: Starts and completions are both sharply up. In 2002/3 they were running at around 6,400 and 5,600 respectively, per quarter. These have now risen to about 7,700 and 6,300 for the last quarter of 2004.
North and Midlands: All these regions have seen an upward trend in starts but without a corresponding increase in completions.
North East: Has seen little long term change in average quarterly starts or completions apart from a slight rise in completions in the last quarter of 2004
HBF note: The government has called the modest increase in housebuilding as an improvement of the housing crisis. It is not. Even sticking to the ODPM’s original household growth figures of 230,000 pa, it would signify the situation is worsening at a slightly lesser rate than before. But with household growth now estimated at 280,000 per annum, far from improving, undersupply is now worsening at an unprecedented rate.
An evaluation of English housing policy
The government today published a major new document evaluating English Housing policy. Click here to view the document on the ODPM website.