A weekly news summary covering all aspects of the housebuilding industry from Pierre Williams, the HBF's head of media. Available to members only.
Rates rise almost certain as economy booms...
A rise in interest rates next month is “all but inevitable” as the economy grows at its fastest pace for four years. The strong revival in industry - especially manufacturing - means that most economists expect rates to be at least 5 percent, and probably higher still, by the end of the year, and that the Bank of England will raise the rate by at least a quarter-point later this month. A leading analyst said: “A quarter-point hike in August must now be a done deal. We expect an additional quarter-point rise in October with rates up to 5.25 percent by the end of the year.” Meanwhile the National Institute of Economic and Social Research has claimed the housing market is 30 percent over-valued and is urging the Bank to abandon its cautious quarter-point increases and get tough with half-point rises to stop the market dead in its tracks. (All media)
...and Bank promises tough action
The Bank of England’s chief economist says the Monetary Policy Committee is prepared to raise rates sharply to curb the housing market. Charlie Bean said the MPC would pursue a “tighter policy in the near term in order to moderate the overvaluation in house prices”. However, in an effort to temper the message he added: “we are not in the business of trying to clobber the consumer.” (Telegraph)
HBF Note: This appears to be another Mervyn King style warning - lots of stick waving in the hope this may preclude having to use it.
The World: just one big property price bubble
The property price boom is a global phenomenon that has been fuelled by low interest rates and a lack of other investment opportunities. Like the equity bubble of the 90s, the housing bubble of this decade, which started in London, Sydney and coastal Chinese cities, has now spread around the world. And when the bubble bursts, as it inevitably will, it will be painful and threaten worldwide economic recovery. This, at least, is the view of a major Morgan Stanley report published this week. The report says 25 percent of the global economy is in the grip of a “full-blown” housing bubble, while a further 40 percent is in a “bubble watch” category. The UK is close to the top of the pile with dramatically overvalued housing. The big question is by how much. Some economists say 45 percent, but the average seems to be between 15 and 25 percent. Whilst a collapse in the UK market is not a certainty, the omens are not good. But there is consensus that what ever the short term outcome, the long-term prognosis is for healthy price growth of 5 to 6 percent a year due to the lack of supply. (The Business)
The fall and rise of average house prices
It all depends on whom you believe. According to Hometrack, house prices fell across much of the country in July, triggering a small drop in the average prices for the first time this year. Hometrack’s figures suggest a 0.1 percent fall across the country with London, Northumberland and East Sussex suffering most. However, the Nationwide disagrees. It said prices rose by 2.1 percent in July - the biggest monthly gain since February. However, the Nationwide’s upbeat assessment might not be all it seems. Buoyant mortgage lending figures suggest this might be a blip. Most market-watchers are convinced further falls are almost certain. Their claims are backed up by a 4 percent decline in the number of househunters - the third successive monthly fall. (Times, Telegraph)
HBF and agents attack Nationwide
The HBF and leading estate agents have attacked Nationwide’s “irresponsible” releasing of figures suggesting a 2.1 percent increase in house prices. Highlighting that the wide discrepancies between leading lenders’ indices prove their unreliability, the HBF's Pierre Williams said the recent figures were at odds with industry experience. Paul Smith, CEO of countrywide estate agency, Spicerhaart, said: “When I saw the Nationwide figures, I thought ‘these aren’t real’. I do think it’s irresponsible.” But Nationwide’s Alex Bannister responded: “The numbers are what they are and we certainly don’t tamper with them.” (Times)
HBF Note: The numbers certainly are “what they are” - they’re all over the place. As such, the MPC probably doesn’t take much notice of them. The problem is that the media does, and figures like these probably encourage the house buying public to think price rises are continuing. This results in buyer sentiment being a more potent force than it should be, weakening the effectiveness of interest rate policy. (Hence Mervyn King’s having to back up rate rises with tough words)
Is sustainable building sustainable?
The government’s “misty-eyed dream” of sustainable communities is at serious risk unless it delivers the subsidy required to make it happen, says the HBF. Piling on new regulations and edicts whilst allowing local authorities to ramp up planning gain demands is gradually eroding the viability of regeneration sites. The massive shift away from houses to flats also needs rebalancing if future development is going to be sustainable, says the HBF's Pierre Williams. Crest Nicholson CEO, John Callcutt, said: “Developers are being pushed to produce one and two-bedroomed flats. The majority of apartments are gentrification, not regeneration. More apartments are buying but not those who need them.” (The Business)
HBF Note: The massive swing from houses to flats has been achieved with barely a murmur from industry. No surprise there: with a buoyant market and serious undersupply, flats have proved successful and puts to rest claims that developers are profligate with land. But with the cooling of the market coinciding with a hoped-for step up in production from the sustainable communities plan, perhaps a better balance of housing types is needed to provide what both buyers want and to fulfil the “sustainable” part of the communities plan - i.e provide the broad mix of housing people want. The majority of owner-occupiers want houses. And houses and high-density are not mutually-exclusive.
Buyers want homes to be eco-friendly
Buyers want to know how energy-efficient their homes are and 84 percent say they would pay an extra 2 percent on the price for eco-friendliness, according to a WWF survey sponsored by Cabe. The survey said buyers were critical about the lack of information provided and highlighted their priorities as lower running costs, enhanced air quality and daylight, use of low-allergy and environmentally-friendly materials and water-efficiency. According to research carried out during the survey, new homes could cut their energy and water use by 30 and 40 percent respectively, for little or no extra cost to the housebuilder. Cabe said: “If you are buying a car, you get any number of specifications allowing you to make comparisons of fuel consumption and value for money. We should get the same quality of information on the environmental performance of homes. (Guardian)
Wimpey booms but sees little delivery on planning promises
Kate Barker proved what our industry already knew. And government has delivered a new Planning Act. But all this hasn’t led to any real improvement, says George Wimpey. The company’s CEO, Peter Johnson, said: “If anything, the planning environment has got worse. If the government successfully makes more land available through the planning system there will be growth. But at the moment it is, at best, static.” While the HBF highlighted how the spreading North West planning moratorium was a deliberate misinterpretation of government policy, Johnson warned that increasing volumes was not an option if the planning system failed to deliver more land, in the right place and at the right price. His comments came as the company announced excellent first-half results with a 29 percent increase in first-half pre-tax profits to £159m, on sales 15 percent higher at £1.22bn. (Telegraph, Times, Mail)
Retirement housing opportunities?
The number of people living to 80 and beyond is set to double within 30 years to almost five million according to official government statistics. By the early 2050s, that figure is set to exceed seven million. Whilst the debate around these figures has centered on pensions under-provision and demands for a strengthening of policy to tackle age discrimination, the need for increased retirement housing is sure to manifest itself soon. (Telegraph)
Government raises spectre of developer “floods charge”
Housebuilders may have to contribute a greater share of the costs of flood defences, Defra minister Elliott Morley said yesterday. Having moved on to believe that defences at regional level would be more effective and less costly than local defences, the minister was unclear about the scale of the costs but accepted the bulk would be borne by government. He said: “Because of the scale of the problem, the bulk of spending will come from government. However, it is not unreasonable that developers in flood plains should contribute towards reducing the risks.” Whilst accepting that flood defences were a necessity, the HBF's Pierre Williams, said: “The costs will have to be judged alongside others imposed by planning authorities. All the costs of providing infrastructure such as transport and flood protection have to be considered against a bottom line figure. If that figure is so great that developers lose money, then the project is not viable.” (FT)
HBF Note: There’s nothing fundamentally new in this. The minister made exactly the same statement two years ago when he proposed a “floods connection charge”. The debate has only moved on in respect of implementing a regional, or holistic, approach to defences. This makes sense, but not if housebuilders are seen as a cash cow to bail out long-term under-investment. This needs watching to ensure industry only pays a fair sum.