A weekly news summary covering all aspects of the housebuilding industry. Available to members only.
Economic News
Annual economic growth at its lowest for 12 years
The final estimate of second quarter Gross Domestic Product saw annual growth revised down to just 1.5% (from an earlier estimate of 1.8%) over the year, although the economy expanded by 0.5% over the quarter, unchanged from the previous estimate. This is the lowest rate of annual growth for 12 years. The downward revision was due to lower estimates for the earlier quarters for public administration and defence, transport and motor trades.
Output in the production industries was unchanged over the quarter, construction output rose by 0.6% and the services sector also grew by 0.6%, largely driven by business services and finance.
(http://www.statistics.gov.uk)
CBI survey shows retailers at their most gloomy for 22 years
The Confederation of British Industry’s (CBI) September Distributive Trades Survey (DTS) showed the fastest year-on-year decline in high street sales in 22 years. A balance of -24% of retailers surveyed by the CBI reported that September sales volumes were lower than a year ago. John Longworth, Executive Director of Asda and Chairman of the CBI's DTS Panel, said: "The reluctance of consumers to spend money is probably due to a variety of factors including higher fuel bills, a reluctance to incur debt and the slowdown in the housing market. With only three months to go until Christmas retailers will be pulling out all the stops to get shoppers back into the high street and spending money."
(http://www.cbi.org.uk)
Political Events
Brown admits that growth forecasts for 2005 will not be met and talks of a house price bubble
Chancellor Gordon Brown admitted that HM Treasury’s Budget forecast for the economy to grow at 3.0% to 3.5% this year will not be met, with the figure expected to be nearer 2%, while in Washington at an International Monetary Fund meeting. (Independent, Financial Times)
In his speech at the Labour Party Conference, the Chancellor hailed Britain’s economic stability and ability to maintain economic growth despite a series of difficulties. He commented: “Why has it been that at every point since 1997 faced with the Asian crisis, the IT collapse, a stock exchange crash, an American recession, last year a house price bubble, this year rising world oil prices, why has it been that at every point since 1997 Britain uniquely has continued to grow? In any other decade, a house price bubble would have pushed Britain from boom to bust.”
(http://politics.guardian.co.uk)
Labour Party Conference
A number of discussions took place a fringe meeting at the Labour party conference, key comments included:
London Mayor Ken Livingston called for the London planning system to be overhauled to protect it from property developers. Mr. Livingston proposed the creation of five planning boards to assume the powers of the 32 local authorities, because smaller authorities do not have the skills to cope with large-scale planning decisions. “You can’t take people who are dealing with back extensions five years out of six and then expect them to get on top of some of the most rapacious bastards on the planet, employing some of the best lawyers money can buy,” he said.
He also said that he wanted to bring the Kent and Essex parts of the Thames Gateway under GLA control to stop them being sidelined by the government and to offer them some of the benefits Londoners receive such as free travel for under 18’s.
Director General of the CBI, Sir Digby Jones, gave a blunt assessment on the need for more homes to be built. He argued that the UK would face a productivity and competitiveness crisis if it did not resolve the current housing problems. Sir Digby said that to address the current backlog, one third more homes per annum need to be built, than current building levels. He criticised the “decrepit” planning system and gave the simple message: “Build more houses.” In an attack on the environment lobby, Sir Digby suggested that under the current regime, “the great crested newt gets a better deal than a postal worker, teacher or nurse.”
MP for Plymouth Alison Seabeck commented that housing had increasingly become one of the main domestic issues. It was noted that there are 30% more households than there were 30 years ago, but there has been a 55% fall in new houses every year. She pointed out that a couple earning 25% more than the average national income cannot afford an average-priced house in the South West.
In a debate on “Working Cities”, leader of Manchester City Council Richard Lease proposed that it was reasonable for people now to expect a decent amount of space in their homes. He wanted to see the return of minimum space requirement in the building of new homes.
Company News
Profits rise at Barratt
Barratt Developments announced results for the year to 30 June, with group pre-tax profits up 10% on the preceding 12 months to £411.3m. UK housing operating profits rose 8% to £395.7m on turnover of £2,472.4m. Barratt made 14,351 sales, up 2%, 11,700 of which were on brownfield land. Barratt expanded their landbank by 19,000 plots to 61,000 and achieved an operating margin of 16.0%.
Group Chairman, David Pretty, commented: “The fundamentals of the housing market remain sound, supported by low interest rates and good employment levels. These are underpinned by restricted supply caused by constant planning delays, and the enormous need for new housing which will have to be met in due course.”
(http://www.barratt-investor-relations.co.uk)
Housing Market
Small fall in house prices in September according to Nationwide
Nationwide reported that house prices fell by a seasonally adjusted 0.2% in September, taking the annual rate of price growth down from 2.3% in August to 1.8% in September. Over the third quarter as a whole, prices remained unchanged. Nationwide continue to expect prices to by unchanged to 2% higher over 2005 as a whole, and remain fairly positive on the market.
Group Economist Fionnuala Earley commented: “While the economic climate has been uncertain the housing market seems to have been remarkably well behaved, slowing in a controlled and stable way. Confidence in the market has not evaporated as many predicted. In fact there are signs of a resurgence in demand which could lead to upside risks to these forecasts. However, given that economic uncertainties are largely on the downside the likelihood of this is small.”
(http://www.nationwide.co.uk)
Mortgage lending at its strongest in over a year
Data released by the Bank of England showed that mortgage lending rose in August with a seasonally adjusted 107,000 loans approved for house purchase over the month, a figure that has risen from a low of 76,000 last November, and the highest level since May 2004. Unadjusted, the number of approvals were up 19% on August last year, after the sharp slowdown began in July, the first time the annual comparison has been positive for fourteen months.
(http://www.bankofengland.co.uk)
Other News
JRF study finds that mixed tenure has produced “ordinary” communities
A study by the Joseph Rowntree Foundation into mixed tenure communities created 20 years ago, found that they had produced “ordinary” communities and countered tenure prejudice. The report found that residents were generally positive about the scheme and regarded each other as “similar types of people” regardless of whether they owned their own home or rented. Residents also cited a high quality physical environment the provision of a range of local services as a positive. The fact the area was mixed tenure was only one element in the overall positive response. The report also commented: “Some of the claims made in relation to mixed tenure are probably exaggerated. There is little evidence that mixed tenure facilitates the transfer of know-how between households or that owner-occupiers act as ‘role models’. Neither does it positively or negatively affect area reputations.”
(http://www.jrf.org.uk)
New proposed Sipps rules come under fire
The rule changes for self-invested personal pensions (Sipps) have come under fire. Under the new regulations, those investing in Sipps will be able to use self administered schemes to invest in property while receiving the tax breaks of a pension fund. Several analysts have pointed out that this is likely to be focused on the bottom end of the market, and hence make it harder for potential first-time buyers to get onto the housing ladder as they will be in direct competition with high earners investing in Sipps. Research by estate agent Savills found that as much as £6 bn per year may be invested in holiday and buy-to-let schemes due to the rule changes.
Liberal Democrat Treasury spokesman Lord Oakeshot said: “Letting people put individual residential properties into their pension funds will end in tears for the taxman, tears for the first-time buyer, and tears for the pension investor.” (Times)
Elderly population could fuel housing crisis
The Town and Country Planning Association (TCPA) has warned that older people could fuel a housing crisis on a similar scale to the pensions crisis. The TCPA fear the projected increase of 3.5 million new households by 2021, 175,000 households a year, will continue to outstrip supply. Of the 175 new households a year almost 130,000 can be directly associated with the growth in the adult population, partly a result of people living longer.
The director of the TCPA Gideon Amos said: “Much as with the looming pensions crisis, we are facing a serious shortfall in future unless we act now to provide more homes for the next generation,” he said. He added: “The gap between the equity rich and those locked out of the property market will widen - unless we provide more housing that is well planned, well designed and well built.”
(http://www.tcpa.org.uk/)
Paul Samter
Senior Analyst - Economic and Policy Affairs
Home Builders Federation
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