A weekly news summary covering all aspects of the house building industry from Pierre Williams, HBF's Head of Media, available to members only.
Barker: The Report
Its official. The long-awaited report on the causes of housing undersupply, commissioned by the Chancellor and carried out by Kate Barker of the Bank of England, has confirmed what the housebuilding industry has consistently claimed - that the failing planning system is primarily to blame. The industry does not escape criticism in the detailed report and can expect significant challenges ahead. But some of the anti-housebuilding lobbys most damning claims have been proven wrong. The planning system is the principal factor for undersupply. Housebuilders are not contributing to the problem by hoarding unacceptably large landbanks. And undersupply does increase house prices. The report provokes a barrage of media reports and comment. But it is clear that if undersupply is ever to be addressed, planning reform will be essential and housing output will have to almost double. The industry too, will have to play its part in reducing anti-development pressure by improving development design and quality.
As Barker herself put it: Housebuilders only hold about one years supply of land with detailed planning permission. That doesnt seem to be unreasonable. The way builders behave arises out of the planning system they face. However, this is not just a numbers game. There is real tension between good building and quick building. If design is poor, nimbyism will increase and numbers will fall further. I dont want my monument to be a lot of new housing in which no-one wants to live. (All national press and broadcast media)
Miles: The Report
The second major report commissioned by the Chancellor which looks at Britains mortgage market, has also been published. Its author, Prof David Miles of Imperial College London, has, as expected, boosted the case for long-term fixed rate deals to help reduce housing market volatility. He blamed discounted mortgages for encouraging buyers to take on more debt than was prudent. And he said these discounted deals were being funded by four million silly homeowners who were too lazy or ignorant to switch from their expensive standard variable rate (SVR) loans. The average rate for a two-year discount mortgage is 3.84% compared to 5.73% for a 25-year fixed rate. Miles estimates that the four million borrowers on SVR are paying more than 5 billion extra a year. Like Barker, he will be producing a second report in spring suggesting solutions. This will certainly be looking to outlaw or increase the cost of discount deals in order to make long-term deals more attractive. (All media)
HBF Note: Barkers report is unquestionably seen as the more important of the two reports. As the Telegraph puts it: Mortgages are cheap. We just need more houses Although this is an obvious point, it raises the question of whether the Government will have the courage to take on the more difficult challenge of effective planning reform or whether it will opt for less contentious reform of the mortgage market. This is something the Observer alludes to in its leader, which says: We need to get building right now. Tweaking the mortgage market will not be enough. We need a revolution. We fear a damp squib.
Barker Calls for Reits
Backed by the Barker Review, the government is looking also looking to address the housing crisis by introducing a tax-transparent vehicle for property investments. This would be similar to US Real Estate Investment Trusts (Reits). These, Government believes, would improve liquidity, transparency and scrutiny, providing access to property for long-term savings. In essence, Reits distribute most of their taxable income to investors and are CGT exempt, while investors pay tax on dividends and capital growth at lower rates. The idea is that Reits would encourage investment in rental accommodation and prove more attractive to some individuals than buy-to-let. (all media)
Government Milking Homebuyers
The government is treating homebuyers as a cash cow says the Council of Mortgage Lenders. It says the Government has made 500,000 more of them pay Stamp Duty since coming to power and is now proposing to add a further 450m a year to their costs with the new Sellers pack. Stamp Duty has more than trebled from less than 2.5bn in 1997 to more than 7.5bn now. The Inland Revenue was forced on the defensive insisting one-third of all sales were free of Stamp Duty. (Times)
HBF Note: The CML story forms just a small part of a rapidly increasing media reaction to what is being seen as Browns tax attack on Middle Britain. From Council Tax to Inheritance Tax, Governments increasing demands for more, as well as its increasing need to borrow for its ambitious plans, is getting increased attention. The Tories have been quick to pick up on this, with accusations from Michael Howard that Government is taxing and spending and failing.
Prescott Renews Call for Planning Reform
Following publication of the Barker Review, John Prescott has reaffirmed the Governments commitment to a faster, fairer, more efficient planning system. Repeating his calls for an urban regeneration, he said: We must build a planning system in which people are proud to work because they know they provide a valued service to their communities. Planning must be a positive force to achieve things - not a hundred ways to say no. (Telegraph)
Prices Still Rising at 12% a Year
House prices are continuing to grow strongly according to the governments own figures. Average prices rose by 1.8% or 2,790 in October, with London bouncing back from its downturn earlier in the year. Meanwhile Scottish house prices have broken through the 100,000 barrier for the first time. The average price in England is now 171,532, while in Scotland it is 100,006 and in Wales, 111,095. The government index also reveals that the average price paid by first time buyers is now 126,803. (Guardian, FT)
New Inflation Index Reduces Rate Rise Fears
The Chancellors decision to change the way inflation is calculated, has reduced pressure for a further rise in interest rates. Switching from the RPIX to the HCIP measure has reduced the official annual inflation rate from 2.7% to 1.4%. In the longer term, this gap is likely to narrow. But in the meantime, it allows Government to at least claim all is well and reduces pressure on the Bank of England to raise interest rates. (Times)
Bank Warns of Financial Nemesis for Overstretched Borrowers
Barclays boss John Varley has warned that he is cautious on hopes of continued economic recovery next year while so many borrowers are saddled with too much debt. He told other bank leaders not to be seduced by upbeat assessments, saying: There are some people out there for whom the 0.25% rise in rates a few weeks back represents financial nemesis. Barclays continues to believe base rates will be 4.25% in a years time but other analysts expect them to be as high as 5.25%. (Independent, Express)
Berkeley Hints at End of Good Times
Berkeley has reported improved interim profits but hinted the good times might be coming to an end. The company said the recent rise in interest rates and increasing uncertainty about the robustness of the housing market might hit consumer confidence. Turnover was up 4% to 635.2m for the six months to October 31 with an increased volume of sales overcoming the reduced average selling price of 271,000. Chief Executive Roger Lewis, said: Prices were healthy until May 2002 but then uncertainty has prevailed. Now we are preparing for a cooling in the market. (FT, Times, Telegraph) The FT notes that Berkeley is in very good shape but perhaps a little less optimistic than some other housebuilders due to focus on London and the South East.
Wimpey Forecasts Further Rises
George Wimpey has dismissed fears of a crash and predicted a further year of rising prices. CEO Peter Johnson said higher interest rates would not have a dramatic effect and said the market was not overheated. The company said it expected results for the full year to December 31 to come in at the top end of City expectations. Peter Johnson said: We do not think the market is overheated. It still remains affordable and certainly can tolerate further interest rate increases. Everyone knows we are not building enough homes. That supports the market. (All nationals)
Brown Plans Inheritance Tax Clampdown
The Chancellor is to clamp down on homeowners who have set up home-loan schemes to avoid Inheritance Tax. The new rules will even apply retrospectively against families that set up the schemes years ago and are being introduced to ensure the Inland Revenue does not miss out on Inheritance Tax receipts that are increasing rapidly with house price inflation. Parents will either have to scrap the schemes or face paying full market rent for living in their own homes. (Sunday Times)
Trendies Toon to The North
Newcastle has overtaken London as the capital of cool and is attracting an ever-increasing number of affluent professionals from the South. A Demos report found that more than 54% of companies in Newcastle and Gateshead were seeing evidence of brain gain and more than a quarter recruited the majority of their staff from outside the region. The report also found that 21% of people in the city were employed in leisure or culture industries compared to the national average of 19%. It is also the second most popular location for high-tech start-up companies. On the downside, the city is losing its distinctiveness as a result of its increasing popularity with outsiders. (Observer, Times)