A weekly news summary covering all aspects of the housebuilding industry. Available to members only.
Economic News
Economic growth revised down further
The final estimate of first quarter Gross Domestic Product (GDP) growth was revised down to 0.4% over the quarter, after an initial estimate of 0.6% and a secondary estimate of 0.5%. This cuts annual growth from the first quarter of 2004 to 2.1% and makes it ever more unlikely that the economy will expand as quickly as the Treasury’s forecast of 3-3.5% for 2005 made in the Budget. (http://www.statistics.gov.uk)
Bank of England more concerned with unsecured lending than mortgage payments difficulties
In its biannual Review of Financial Stability, the Bank of England took a fairly sanguine view on the potential pitfalls faced by the financial sector, “Overall, the outlook suggests that major threats to financial institutions from developments in the economic environment are unlikely to materialise in the short term.” Although the household sector is considered the most vulnerable sector of the economy, the rate of write off of household debt is still low by historical standards.
Credit card lending was considered the most vulnerable area, accounting for over 30% of UK-owned banks’ write offs, while arrears on lending for mortgages “remain near historical lows and provisions are about a tenth of the level reported during the early 1990s.” (http://www.bankofengland.co.uk)
Little change in the volume of mortgage approvals in May
The Bank of England reported that a seasonally adjusted 96,000 mortgages were approved in May, almost unchanged from the 95,000 in April. While this is 22% lower than the number of approvals in May 2004, it does represent a sustained recovery from a low of 77,000 in November and is the sixth successive monthly increase, following on from a sharp drop when the market ran out of steam at the end of Summer 2004. (http://www.bankofengland.co.uk)
More gloom on the high street
The Confederation of British Industry (CBI) distributive trades survey for June recorded the worst year on year fall in the survey’s 22 year history. A balance of –19% of retailers surveyed reported a lower level of sales than in June 2004, however the annual fall was exaggerated by comparison with a very strong month last year when Euro 2004 boosted sales. ASDA Executive and Chairman of the survey panel John Longworth commented: “A year ago retailers were reaping the benefit of 'Euro 2004' which was credited with boosting sales of everything from football clothing to TVs and beer. But while this may explain part of the record year-on-year decline now registered, there is no doubt that the underlying picture is also bad.” (http://www.cbi.org.uk)
Political Events
Housing Minister hints at shake up of planning system
In a speech to the Royal Town Planning Institute, Housing Minister Yvette Cooper hinted that there may be changes to the planning system in an attempt to make the system more responsive, as recommended by the Barker review. Ms Cooper said: “Work is underway across the government in response to the Barker review, and we will set out a fuller response later in the year. Before the summer we will begin consulting on possible changes to planning policy to improve local delivery and to enable the planning system to take better account of market signals about housing need.” (http://www.odpm.gov.uk)
New bill to protect and enhance common land
A new Commons Bill will protect common land from development, allow it to be managed more sustainably, improve protection from neglect and abuse, and modernise the registration of commons to ensure all commons enjoy the same protection. Rural Affairs Minister Jim Knight said one of the Bill’s most important provisions would stop the loss of common land through deregistration, which can occur if a landowner buys out the commoners’ rights. (http://www.defra.gov.uk)
Company News
Persimmon gives a fairly upbeat view of the market…
In a trading update to the London Stock Exchange, Persimmon maintained a fairly upbeat view on prospects for the market. The press release commented: “Despite a slower period of trading during the six months to 30 June 2005, pre-tax profits for the period are expected to be ahead of the prior year… There remains an undersupply of new homes in general across whole of the UK, which reinforces our continuing confidence in the market and in Persimmon’s ability to make further progress.” Completions were almost unchanged compared to a year ago at around 6,000 over the first half. (http://www.londonstockexchange.com)
…while Wilson Bowden are more downbeat
In their trading update Wilson Bowden noted a 22% reduction in the rate of sales per site in comparison to 2005. The press release commented: “The 2005 spring selling season commenced with an initial pick up in market activity, but reservations levels were subsequently impacted by the uncertainty created by the general election. Visitor levels have not returned to early spring levels since the AGM, but the proportion of reservations to visitor numbers remains high giving us confidence in the desirability of our product.” Completions in the first half were expected to be around 10% lower than in the same period a year earlier. (http://www.wilsonbowden.plc.uk)
Redrow note lower activity but expect a stronger 2006
Redrow’s trading update highlighted that profits for the six months to June are expected to be up on the same period of 2004 and completions to be up 2%. The current market environment was described as “where prices remain stable but market activity is at a lower level than is expected of a “normal” market.” Group Managing Director Neil Fitzsimmons also said: “Delayed housing transactions will gradually increase pent up demand and affordability will improve as time passes. This will further be supported if interest rates begin to fall. These factors, taken together with the benefit from potential changes to the U.K. pension regime in April 2006, suggest that there may be a stronger market in the Spring of 2006.” (http://www.redrow.co.uk)
Housing Market
Prices fall marginally in June according to Nationwide…
Nationwide reported that house prices fell by 0.2%, seasonally adjusted, in June, to stand 4.1% higher than in June 2004, the lowest rate of annual price growth since July 1996. For the second quarter as a whole, prices were 0.8% higher than in the first quarter and Nationwide describe the trend in prices over the last three months as “almost horizontal.” (http://www.nationwide.co.uk)
… and Hometrack
Website Hometrack reported that house prices fell by 0.2% in June, to leave prices 3.2% lower than in June 2004. Sales prices were reported to have fallen slightly to 93.5% of the asking price, which Hometrack attribute to the reason that “buyers are negotiating larger discounts as sellers continue to set unrealistic asking prices.”
On the outlook for the market, Housing Economist John Wrigglesworth commented: “We expect house prices to continue to bump along the higher plateau after the coming months. While the market is stagnating it is showing absolutely no evidence of crashing. All talk of a pending housing recession is total clap trap.” (http://www.hometrack.co.uk)
Other News
Planning applications fall in the first quarter, but applications for new dwellings rise
The total number of planning applications received by district planning authorities in England fell to 169,000 in the first quarter, down 5% on the first quarter last year. However, the number of applications for “new dwellings” rose from 18,700 a year ago to 19,800, to make up 14% of all applications.
For developments of more than 10 units, 14% of applications were determined within 8 weeks (a figure that has continually fallen over the last decade), while 56% were decided within 13 weeks. 67% of these applications were successful, with 33% rejected, a success rate well below that seen over most of the last decade. (http://www.odpm.gov.uk)
ODPM create Homelessness Innovation Fund
The ODPM has created the Homelessness Innovation Fund (HIF) to make available at least £2m revenue funding to be spent over the next two financial years. This funding will support local authorities to develop innovative ways to meet the target to reduce temporary accommodation by 50% by 2010 set out in the government’s homelessness strategy “Sustainable Communities: settled homes; changing lives and to develop more effective homelessness prevention.” (http://www.odpm.gov.uk)
UK’s first large-scale, hi-tech housing development announces BT technology partner
National regeneration agency English Partnerships, with lead developer Crest Nicholson/Hyde Group, announced BT as the preferred technology partner for Oakgrove Millennium Community in what will be the UK’s first, large-scale, ICT (Information Communications Technology) enabled development. (http://www.englishpartnerships.co.uk)
Social Homebuy “unworkable” says NHF
The National Housing Federation (NHF) has said that the government’s social Homebuy scheme is “unworkable” as ODPM figures revealed housing associations will be out of pocket 30 years after the sale of shares takes place. As part of the scheme up to 300,000 tenants will be allowed to buy at least a 50% share in the value of their home.
Danny Friedman, the NHF’s director of policy, said: “At present these plans are unworkable and a real missed opportunity. The figures don’t stack up for residents, housing associations, lenders and ultimately the public purse.” Current proposals prevent housing associations from charging rent on the share of the home this is not owned by the purchasers. The NHF argue that some rent will have to be charged to make the scheme workable. (Guardian)
14,000 home plan for Thames Gateway
A private company, Thamesgate Developments, plans to build 14,000 homes in East Tilbury on the north bank of the Thames in Essex. It is a joint venture between housebuilder Lansbury and businessman Alastair Watson, who have bought up the land in the last few years. Much of the land is greenbelt so it will test the planning authorities will to drive though the government’s plans to see a step change in the number of homes built in the South East.
Thamesgate argue much of the greenbelt land is spoilt, though critics also say the land is in a flood plain. The scheme will take more than 10 years to complete with the first phase containing 7,000 new homes. The developers claim the new settlement will be carbon neutral and 40% will be affordable homes. When complete East Tilbury could be worth £1 billion. (Observer)
Paul Samter
Senior Analyst - Economic and Policy Affairs
Home Builders Federation