A weekly news summary covering all aspects of the house building industry from Pierre Williams, available to members only.
Taylor Woodrow Takes Over Wilcon
Wilson Connolly has agreed to be taken over by Taylor Woodrow to produce Britain’s fourth largest housebuilder. The recommended bid values Wilcon at £480m (a 10% premium on last Friday’s closing prices) and will consist of 200p per share and 0.132 new Taylor Woodrow ordinary shares. Taywood Chief Executive, Ian Napier, saying the merger was an “ideal fit”, added that the enlarged company would make cost savings of around £25m a year by 2005 but result in the loss of 300 jobs out of a combined total of 5,000 - many at head office level. Merrill Lynch analyst Mark Hake, said: “Six months ago, Wilcon was not in such good shape as it is now. Taylor Woodrow has paid more but has reduced the risk of buying a dud.” Graeme McCallum, the Chief Executive credited with turning Wilcon round, will join the board of the enlarged group. (Telegraph, FT, Times, Independent, Mail, Sunday Times)
Record Land Shortage Fuels Boom
A record shortage of development land is set to continue the house price boom in the long term by undercutting government efforts to increase supply. Richard Donnell of FPDSavills says residential landbanks provide for just two and a half years supply at current historically low rates of build. In 1992 land costs accounted for 15% of the cost of a home. This has soared to today’s level of 34%. HBF attacked planning changes brought in last week cutting the time for appeals from six to three months and increasing the level of consultation with affected parties. Brought in ostensibly to make planning “faster and fairer” Pierre Williams for HBF said the opposite would happen: “LPAs have long blamed their inefficiency on being under-funded, under-staffed and overworked but these changes simply increase their workload.” (Times)
House Prices Rise Again
House prices rose 1.3% last month in an upturn spread evenly across the country, the Halifax has reported. The market looks poised for continued growth thanks to the combination of high employment, continued low interest rates and a resurgence of confidence in the market, said the bank’s chief economist Martin Ellis. However, the bank also warned that the increasing absence of first time buyers would have an effect, causing prices to grow at a more “level pace”. With average prices now five-times earnings, other analysts see the latest price rises as fuelling the risk of a future downturn. (All media)
Savills Results Suggests Housebuilders Should Hold Their Nerve
Savills has reported a recovery at the top end of the housing market over the past two months. The estate agency said worries over the war in Iraq and the Sars outbreak had gone over the summer. In addition it said many sellers had refused to heed advice to drop their prices by 15 to 20%. “We’ve not seen prices falling off a cliff. People just weren’t willing to come down,” said a spokesman. However, it said developers had not always responded in a similar way: “A feature of this year’s market has been the number of block sales, sometimes discounted, to both UK and overseas investors.” (Independent)
“Guru” Pidgley’s 1m Share Sale Prompts Sector Fall
Share prices of a number of housebuilders fell slightly after Tony Pidgley sold one million of his own company’s shares reducing his holding from 2.35% to 1.56%. Berkeley fell 2.2% but Wimpey dropped 3.3%, Redrow 3% and Bellway 2.2%. The falls across the sector reflect the scale of Pidgley’s influence over the industry. As one analyst put it: “Mr Pidgley is seen as a bit of a guru. When he acts the rest of the world follows suit.” (FT, Telegraph, Express)
FT Produces Its Own Property Price Index
The Financial Times has joined the fray by launching its own house price index. It justifies its decision by highlighting the consistent discrepancies between other major index providers - notably the Halifax and Nationwide. The first published index says house inflation is much lower than expected. It concludes that an economy in reasonable shape, low interest rates and low levels of housebuilding all suggest a price crash is not on the cards. (FT)
CML Frets About Lack of FTBs
The late Summer boom in prices will be short-lived the Council of Mortgage Lenders has said on the back of figures showing the numbers of first time buyers at a historic low. CML chief economist, Jennet Vass, said: “The market has been boosted by low interest rates and higher earnings. However, indicators suggest affordability is now stretched and there is little scope for further significant house price rises.” (Guardian)
But….Mortgage Lending Reaches New Peak
Britain’s borrowing boom continued in July as consumers dismissed housing market worries of a slowdown and instead piled up mortgage debts to a record £835bn. The renewed borrowing splurge underlined Bank of England concerns that the pace of borrowing has become unsustainable. The number of new mortgages approved rose to 111,000, the highest since last November, backing up reports of a renewed surge in house prices. (All media)
Land Banks Necessary - Barker
Kate Barker, the Treasury economist examining low levels of housebuilding, has accepted the need for developers to have reasonable landbanks. She said: “It is clear why, as a builder, you would need to hold onto land because of the time it takes to get detailed planning permission. You would need to hold quite a bit because it may take up to two years. As a business you need the visibility of this asset.” (Housebuilder)
Economic Recovery Crushes Rate Cut Hopes
The stock market recovery, unexpectedly strong growth in the services sector and renewed optimism on the economy has all but eliminated hopes of a further cut in interest rates. The Bank of England this week keep rates on hold at 3.5% and all 45 City economists polled by Reuters said the Bank would continue to do so in the near future. However, the financial markets now forecast a quarter-point rise by the year end. (Independent, Guardian)
Top School Catchment Areas Raise House Prices by 33%
Parents will pay 33% more for an average house in the catchment area of a top primary school and 18% more for those near the highest-scoring secondary school, a new report from the London School of Economics has revealed. Research showed an average house in Reading costing £126,930 in 2001 would cost £42,541 extra if in the best primary school’s area. Prof Paul Cheshire who carried out the research, said: “People are remarkably sophisticated when it comes to buying houses. They are not just buying a house , they are buying a neighbourhood, a local community, a way of life.” (Mail, Guardian)