A weekly news summary covering all aspects of the housebuilding industry. Available to members only.
Economic News
MPC minutes hint at future rate cuts
The minutes of the Bank of England’s Monetary Policy Committee (MPC) meeting on 6/7 June, where the repo rate was left unchanged at 4.75%, revealed a somewhat surprising outcome, with two of the nine members of the Committee (Charles Bean and Marian Bell) voting for a 25 basis point cut. The other seven MPC members voted for no change.
The minutes were more dovish than commentators had expected: “Although output growth had so far been fairly resilient in the face of weaker consumption, GDP growth was likely to be weaker than in the May Inflation Report central projection, not withstanding the shift in market interest rates. Inflation might therefore be below target in the medium term. While there were arguments in favour of waiting for more information before taking action, that risked the slowdown in consumption becoming more entrenched. A small reduction in rates now might obviate the need for a larger reduction in interest rates at a later date.” (http://www.bankofengland.co.uk)
Chancellor pushes for increased competitiveness and a faster planning system
At his Mansion House speech Chancellor Gordon Brown pushed for improved competitiveness and a faster planning system: “…a Britain that nurtures the spirit of enterprise from our classrooms to our boardrooms, and makes the long term decisions so that as a nation we will move up the value added chain and invest in science, skills and transport and infrastructure, not least by speeding up an all too inflexible planning system to speed up investment in housing and commerce - making Britain the premier location for R and D and the world leader in skills and the creative industries.” (http://www.hm-treasury.gov.uk)
The subdued housing market could account for lower consumer spending
An article in the Bank of England’s Summer Quarterly Bulletin puts forward the case that a lower number of housing transactions could account for the slow down in consumer spending. The article “How important is housing market activity for durables spending”, by Andrew Benito and Rob Wood, observes that people are two or three times more likely to buy certain durable goods (particularly “white goods”) when they move home, although they also point out that “the impact on aggregate consumption of a change in housing transactions is likely to be moderate.” (http://www.bankofengland.co.uk)
Record-breaking government borrowing
Government borrowing reached a record monthly high in May, according to Office for National Statistics (ONS) figures. Public sector net borrowing hit £8.7bn in May, the highest level since records began in 1993. The ONS said the jump was driven by a 7.5% rise in government spending, which outweighed a 4.3% rise in receipts. The surge in borrowing means public sector borrowing for the year so far stands at £10.25bn. Chancellor Gordon Brown has forecast total borrowing for the current financial year to be £31.9bn. (http://www.statistics.gov.uk)
Political Events
Council house funding criticised
A report from the Audit Commission criticised the way that some council house tenants are subsidising others and called for a review of the funding system. The report found that tenants in the East of England pay £14 a week to support other less efficient regions, while tenants in London receive a net subsidy of £15 per week. Commission chairman James Strachan said: “Rather than trying to sustain a complex system of cross-subsidy, we recommend government consider allowing those councils that can finance themselves to do just that and to focus on how to meet massive capital demands facing some urban councils still failing to meet the needs of their communities.” (FT, Times)
More money for social housing refurbishment
In a speech at the Chartered Institute of Housing's annual conference, Housing Minister Yvette Cooper announced a £3bn funding package to refurbish 125,000 homes to modern standards and build 1,400 new social rented homes. Of that £3bn, £1.8bn will be levered in from the private sector. (http://www.odpm.gov.uk)
Sheffield to be HQ for new environmental body
Rural Affairs Minister Jim Knight announced that Sheffield would be the headquarters of Natural England, a new non-departmental public body incorporating English Nature and parts of the Countryside Agency and the Rural Development Service, subject to the successful passage of the Natural Environment and Rural Communities Bill. (http://www.defra.gov.uk)
Company News
Berkeley report full year results…
The Berkeley Group announced preliminary results for the twelve months to 30 April. Pre-tax profit fell by 11.7% compared to the preceding twelve months, to £202.9m, on turnover of £1070.3m. Berkeley increased their land bank from 26,654 to 27,278 plots and registered a 22.2% return on capital employed. Chairman Roger Lewis commented: “There has been much commentary on the housing market since the beginning of the year. From Berkeley's perspective the market has been very acceptable and at the level for which we planned when we embarked on our Scheme of Arrangement.” (http://www.berkeleygroup.co.uk)
… and sell Crosby Homes
The Berkeley Group announced that they have sold subsidiary Crosby Homes to Australian property group Lend Lease for £235.7m. Berkeley Group Managing Director Tony Pidgley said: “I am delighted to announce this transaction which allows Berkeley to focus on its core market in London and the South East, and gives Berkeley greater financial flexibility for the future.” (http://www.berkeleygroup.co.uk)
Crest Nicholson announce interim results
Crest Nicholson announced pre-tax profits at £35.9m for the six months to 30 April 2005, compared to £36.0m in the same six months a year earlier, on turnover of £315.3m. Open market completions were up 12% to 830 units, while affordable housing unit completions fell 18% to 256. Chief Executive John Calcutt said: “We expect the housing market to continue to be challenging in the short term. However, the quality of our land bank, combined with the strength of our affordable and mixed-use commercial businesses, gives us confidence that we will make further progress in 2005.” (http://www.crestnicholson.co.uk)
Centex considers putting Fairclough up for sale
US Housebuilder Centex announced that they were “exploring various strategic alternatives regarding its United Kingdom Home Building Group which operates under the name of Fairclough Homes.” Centex acquired Fairclough in 1999. (http://ir.centex.com)
Housing market
Rightmove report stable prices in June but first time buyers still struggle
Rightmove’s June House Price Index showed a 0.2% increase in asking prices between 8 May and 11 June, causing the annual rate of increase to fall from 4.9% in May to 2.4% in June. Rightmove point out that this is the first time that wage growth has exceeded house price growth this decade.
Rightmove comment: “Relying solely on current levels of wage rises, it will take around seven years for average first time buyers to return. But reductions in interest rates could make a big difference. A drop of 1% in interest rates, coupled with continuing strong increases in real wages, would bring affordability back into line in just four years rather than seven.” (http://www.rightmove.co.uk)
Other News
New South West housing initiative launched publicly
The Home Builders Federation, the National Housing Federation, the CBI, lawyers Clarke Willmot and the Chartered Institute of Housing have come together to announce a pioneering new initiative aimed at easing the housing crisis in the South West of England. The South West Housing Initiative was put together following a conference earlier this year investigating the root causes of the region’s housing problem. The Initiative aims to promote mutually acceptable thinking on how the crisis should be addressed.
Commenting on the initiative Rob Ashmead, Chief Executive of the Home Builders Federation, said: “Increasing housing supply to bring it into balance with demand is the only way to improve general levels of affordability and to avoid the impending housing crisis in the South West. The industry looks forward to working with local stakeholders and planning authorities to take action that will have real results for the region.” (http://www.hbf.co.uk)
Industry leaders launch house building apprenticeship guide
In a cross industry initiative, Constructing Excellence’s Housing Forum, the Home Builders Federation, NHBC, and ConstructionSkills have joined forces to produce a new guide designed to assist prospective apprentices and all other parties involved in the house building apprenticeship process and encourage new apprentices to enter the house building industry.
The guide’s launch coincides with the need recognised by the government to build between 70,000 and 120,000 extra homes a year to meet national demands, while regenerating many older urban areas, adopting improved design and environmental performance and undertaking extensive refurbishment work to bring all social rented properties up to Decent Standards. These needs will open many new career opportunities. It is estimated by ConstructionSkills that a further 88,000 people will need to be recruited each year for the next 5 years and that many of these will be required in housing. (http://www.hbf.co.uk)
HBF note: The guide has only so far been distributed at the Chartered Institute of Housing’s conference this week. HBF will write to members shortly about the guide and will then be able to provide stocks for members to use.
Cost of servicing mortgages edges up, but the outlook is positive
Research by the Woolwich showed that the proportion of household income spent on mortgage payments edged up to 18.5% in May (from 18.3% in April). Andy Gray, head of mortgages for Woolwich, said: “The mortgage affordability numbers show that the concern expressed by some commentators about affordability is probably over done.”
Looking further ahead, Mr Gray commented: “The signs are that the cost of servicing mortgages has at least levelled out and in some regions started to fall. This would suggest that if there are no further base rate increases, and with little house price inflation, there should start to be a fall in mortgage servicing costs relaxing the current strain on consumers’ pockets and potentially adding a boost to other areas of the economy, such as retail sales.” (http://www.newsroom.barclays.co.uk)
CML calls for vigilance on property investment clubs
Following the Department of Trade and Industry’s action against several property investment clubs (PICs), the Council of Mortgage Lenders (CML) warned of the dangers of speculative property investors. The CML point out that the vast majority of buy-to-let owners are longer term investors and that PICS “usually concentrate on the ability to re-sell and make a short-term profit, rather than rely on rental income potential. This is very different from mainstream buy-to-let, where the focus is on long-term investment.” (http://www.cml.org.uk)
Proposal for households to “sell” their spare energy
Energy Minister Malcolm Wicks raised the possibility of households being able to sell the energy they make by using their own generators in a new consultation. Mr Wicks commented: “"Many people are keen to do their bit to help cut climate-changing emissions. They have the potential to make a big difference - nearly half of all UK carbon dioxide emissions come from buildings. It's all about looking to the future but acting now." A strategy for the promotion of micro-generation will be published by April 2006. (http://www.number-10.gov.uk)
Fears of further planning backlogs
Housebuilders fear that large developments could be further delayed by planning backlogs following suggestions that October would be the earliest date planners could be assigned to public inquiries. Spencer McCarthy, chairman and group managing director of Churchill Retirement Living said: “We put in an appeal for a site in Tunbridge Wells about six weeks ago, we hadn’t heard anything so rang the Planning Inspectorate and spoke to the chart room. They told us they weren’t giving any dates until October.”
A spokes person for the Planning Inspectorate responded: “It is incorrect to claim that PINS are refusing to set inquiry dates until October 2005 - these are being scheduled as normal. As regards Written Representations, the backlog - which was in excess of 5000 last year - has now been eliminated.”
But planning minister Yvette Cooper has said there are still some failings: “If planning authorities perform poorly, the whole community is disadvantaged. This is why I am concerned that a minority of local authorities are still failing to progress. It is vital that the planning service delivers appropriate, high-quality developments that will serve our communities now and for future generations.” (http://www.house-builder.co.uk)
Paul Samter
Senior Analyst - Economic and Policy Affairs
Home Builders Federation