As I look forward to what the new decade has in store for the new homes market, I’m struck by how 2009 was a tale of two halves for the housebuilding industry. From an extremely bleak start in terms of new home starts and depressed prices, at the end of the year we found ourselves in increasingly positive territory, both in house price growth and with the improving fortunes of UK housebuilders - rising share prices and rights issues from some of the country’s top developers offering a ray of hope for at least a modest improvement to UK homebuilding for this year.
The absence of the traditional summer slowdown played a major role in altering the outlook for the industry last year. It was during this period that buyers began returning to the market in earnest, amid signs of growing house prices in the re-sale sector and improvements, albeit extremely meek, in the mortgage market.
However, developers have continued to take a cautious approach, keeping stock prices in check in spite of strong rises in the re-sale sector, and it seems that buyers have responded, recognising the value offered by new homes in the current climate. We are only now starting to see true signs of new build price recovery. In early November, Taylor Wimpey was the first to announce its own product price increase.
While I do not expect new build prices to surge upwards in the short-term, I believe positive single figure growth for 2010 is now extremely likely. It all comes down to the prevailing imbalance between supply and demand. Following the setback of the past two years, any supply progress made in 2010, or indeed in the foreseeable future, will never be sufficient enough to cope with the current level of pent up demand for new homes.
It will take a number of years for the housebuilding construction sector to return to 2007 strength, but housebuilders are feeling more positive about this year, with the worst write downs in land values behind them, lower costs from subcontractors and cheaper land still available.
We are likely to see an increase in new homes starts this year, from around 70,000 in 2009 to 90,000 in 2010, but this is still falling way short of the numbers needed to meet the worsening shortfall of housing in the UK. The much-publicised Government target of 240,000 new homes per year by 2016 has dropped by the wayside and the current capacity of the weakened housebuilding sector could ensure this kind of output remains totally unachievable not just for this year but probably for the next five years.
With a General Election approaching, housing policy is currently in limbo, but all three leading parties need to designate housebuilding targets for 2010. The Conservative Party's Localism policy could have serious consequences for new homes supply, with its proposition that local councils be given the power to make planning decisions with no overriding targets from central Government. This could allow 'nimbyism' to flourish and work against improving housing supply.
While housebuilders are reporting encouraging sales rates as homebuyer confidence returns, mortgage lending continues to act as a barrier to market recovery. This applies particularly to the new homes sector, which still suffers from down-valuations by lenders compared to the wider market. However, there are encouraging signs that the mortgage market freeze is starting to thaw, and SmartNewHomes.com expects some lender competition to return in the first half of this year, with the base rate remaining low at least until the second half. Housebuilders will be working hard to make new homes as attractive and affordable as possible compared to the wider market, with aggressive pricing and incentives.
I can confidently say the worst is behind the new homes sector. The last two years have seen a significant reduction in the number of players operating in the industry, and many of those remaining are in a strong position to take advantage of lower land prices and growing consumer confidence. While new homes price growth will be minimal this year, the worsening supply shortage is likely to support prices over the longer term.
David Bexon, Managing Director, smartnewhomes.com
See Also: New Homes Market (28), Press Releases (372), Property News (6699), Big Smart Blog (11)
Date Published: 12 January 2010
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