A weekly news summary covering all aspects of the housebuilding industry from Pierre Williams, HBF's head of media, available to members only.
Chancellor Tries to Cool Market Jitters
Gordon Brown has finally reacted to intense media speculation about the strength of the housing market by insisting the boom will “not be followed by a bust”. Having previously steered clear of talking about the issue, it seems the Chancellor has seen a need to react to the IMF’s claim last week that the risk of a fall in house prices was the biggest risk to the UK economy. Brown dismissed these fears by highlighting the continued affordability of mortgage servicing. “Mortgage payments as a share of income are still far lower than they were a year ago,” he said, adding that average mortgage payments were now about 7% of household disposable incomes compared to 15% at the time of the last crash in the early 90s. (All media)
HBF Note: That the Chancellor has needed to react is a sign of the intensity of the debate. Most commentators agree with his prognosis. However, this in itself is leading to questions as to whether the Chancellor’s policy is to do all he can to put off a softening of the market until after the General Election
Lenders and MPC Increase Pressure for Rate Rise…
Further pressure has been put on the case for a rise in interest rates after two leading mortgage lenders, HBOS and Bradford & Bingley, both announced the market for the first quarter of the year had been more buoyant than expected. Meanwhile, one of the Bank of England’s most prominent “doves” has argued that rates need to increase. Marian Bell, who voted against the rate rise last November, now says the strength of the economy, both domestic and global, now means a rise is necessary. This adds significant weight to analysts’ general conviction that rates will rise by a quarter point next week. (FT, Times)
…but Borrowing Continues Relentlessly
Borrowers are ignoring rising interest rates and continuing to borrow at record levels. Such is the surge in lending that the Council of Mortgage Lenders has prompted borrowers to “think carefully about how they would cope with higher interest rates” while another member of the Monetary Policy Committee said the housing market was their “biggest uncertainty” in deciding how to set rates. These warnings follow new figures showing mortgage lending increased by a net £6bn in March compared to the previous month - the highest on record. (All media)
…And Pressure on Buy-to-Let Increases
Despite last week’s news that average yields on buy-to-let have increased by 0.1% this year, there has been further media pressure on the real strength of this market. According to the latest government figures, private rental inflation is falling sharply. Rents rose by 4% in the year to the third quarter of 2003. Whilst still relatively robust, this contrasts sharply with rent rises of 6% and 10% in the previous two years. (FT)
Densification of Suburbia is The Key
An academic study suggesting large suburban gardens should be used for new housing has been endorsed by the government. The team, led by Prof Marcial Echenique of Cambridge University, says that bringing high-density living to the suburbs is the key to increasing housing numbers, reducing car-dependency and hence encouraging sustainable development. Prof Echenique, said: “They made very large gardens in the 1930s and it is possible to sub-divide the plots with alleys and paths to increase the density of development.” The government is so impressed with this “new” thinking it has given the team £1.75m to design sort of development it is proposing. (Independent)
HBF Note: If ministers really think infill is a new idea, it doesn’t suggest government’s understanding of planning is up to scratch.
Flood Defence Spending “Must Double”
Flood risk is worsening so rapidly that spending on defences must double to £1bn a year over the next two decades, a major government report has concluded. Without significant improvements to defences, the number of people at high risk from flooding will increase from 1.6m today to as much as 3.6m by 2080. The report by the Office of Science and Technology could have significant impact on housing growth. It calls for the creation of new “green corridors” and the maintenance of undeveloped spaces to act as “safety valves” for floodwaters. But it also said that asking developers to provide defences might not be the best policy as it could lead to a piecemeal approach where regional or strategic defences would be much more effective. (FT, Mail, Independent, Times, Telegraph)
Westbury Shrugs Off “Bidders”
Westbury is to fend off takeover attempts by bigger firms by becoming bigger itself. The company is looking to expand volumes by about 10% annually for the next few years to reach a “new platform of scale”. Martin Donohue, CEO of the sixth largest UK housebuilder, said: “Because of our size we are regarded as a target but we want to remain independent. People tend to make approaches based on weakness, so we have to keep producing top-quartile performance year-on-year.” His comments were made on the back of robust results with a 28% rise in pre-tax profits to £106.6m. Importantly, the firm’s Space 4 timber frame operation is now breaking even after a troublesome start. (FT, Times, Telegraph)
McCarthy & Stone Gears Up for Grey Tidal Wave
McCarthy & Stone is getting ready to take advantage of the “huge pent-up demand” for retirement homes. Pointing out that by 2021, nearly 20% of the population will be over 65, Land and Planning Director, Gary Day, said: “There is a tidal wave of elderly people heading towards us. Unless the government responds with better housing and planning policies for them, there could be a potential crisis on the horizon.” Putting its words into action, the company is looking to raise its completions of retirement flats from 2,000 to 2,500 over the next two years. Already, its land holdings are already up 12% to more than 9,500 units, staff numbers are up 14% and it has opened five new offices this year. Pre-tax half-year profits rose from £39.7m to £44.1m. (FT)
HBF Note: The FT comments that the company is in a “great position to cash in on the grey pound”.
MoD to Close Four Bases
The Ministry of Defence has announced the closure of four RAF bases - Boulmer in Northumberland, Neatishead in Norfolk, Sealand in Cheshire and Stafford. Other big bases, including Coltishall in Norfolk might also soon be put on the market. (Guardian)
Forget the Rest - Tune in to The Best
Forget Halifax, Nationwide, ODPM and all the rest - stockbrokers Durlacher have created a novel way of assessing the state of the housing market with their new “TV Index”. By tracking the number of programmes across all channels that feature ways of making money from property, the firm reckons it will get an early lead on the state of the market. The first signs are not all that encouraging with “only” three such programmes currently being screened whereas before Christmas there were four. However, all is not lost. A spokesman for Durlacher, said: “Probably the best indication of difficulties in the market will be when Property Ladder is no longer commissioned.” (Observer)