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New homes industry plunged into fresh turmoil

11 August 2010
Written by rosalind renshaw

Housing shortages look set to worsen while the future of housebuilding looks beset with uncertainty after developers made earlier efforts this year to re-stock their land banks.

The price of greenfield and brownfield residential development land rose by 6.1% and 3.7% in the second quarter of 2010, bringing the annual rate of increase to 20%.

Knight Frank also reported a 10% rise in demand, outpacing supply.

But the agents warned that evidence from the market from mid-June has been more subdued.

This follows the announcement of planning changes by the Coalition Government, which include the scrapping of national housebuilding targets and a new ‘localism’ approach to planning with a ‘new homes bonus’ announced yesterday.
Liam Bailey, head of residential research at Knight Frank, said: “We believe the land market will become increasingly parochial and as a consequence its performance will be erratic.

“We believe that the structure of the Government’s proposed planning policy will cause considerable disruption to an already fragile planning environment and we expect a fall in planning applications.

“The political complexities of the new planning policy will create uncertainty and delay and will result in industry-wide frustrations.

“What is really needed is a system which divorces itself from politics and responds to the pragmatic issues of housing needs, but unfortunately this sentiment does not seem to have prevailed.”

Bailey’s warnings came as housing minister Grant Shapps confirmed that local authorities will get the equivalent of six years of council tax for every new house.

But there was a chorus of critical voices saying this was insufficient incentive.

The New Local Government Network think-tank called for bigger incentives for areas with acute housing needs.

Steve Lees, marketing director of SmartNewHomes.com, said: “The housebuilding industry was desperate for detail on the Coalition’s housing policy to fill the policy vacuum left by the abolition of Regional Spatial Strategies after the election. However, the latest outline proposals will leave many in the industry feeling that ignorance was bliss.
 
“Shapps talks of ‘powerful incentives’ to build, but the reality is that matching council tax (a total of approximately £8,500 per new home over six years) is simply not enough money to counter nimbyism in many of the areas where the housing shortage is most acute. Not only that, but funding will not filter through for months, given that the consultation paper will not be released until late October at the earliest.
 
“The housing shortage is at desperate levels. This already dire crisis now looks set to get worse.”

Comments

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    Pee bee, I suspect it is neither, I operate in an area where the Local Authorities are granting consents for large scale development in virtually every green field, because the previous government decided we were the appropiate place to accommodate the countries growing population.

    However without the infrastruture and employment opportunities the Governments view of how many people want to live here has been grossly over estimated.

    We now have a chronic oversupply of land with consent and this coupled with lack of finance has caused the poor level of demand.

    The few developers with money have been very picky and as a result small to medium size sites have become increasingly difficult to sell.

    It seems to me that if you are experiencing different market conditions for land that the government should allocate your area for the sort of development that we are expected to accept.

    • 11 August 2010 12:28 PM
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    ace: Two possible causes here - either the land is STILL overpriced, or it is simply not developable.

    Which one do YOU think is the cause?

    • 11 August 2010 12:03 PM
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    What a load of rubbish.

    I have land for sale at present and despite a 50% reduction in asking price over the last 3 years the developers are simply not interested in buying.

    Land Prices are simply not rising and this is a load of political mumbo jumbo aimed at further depressing the market.

    • 11 August 2010 11:48 AM
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    DRC: The fault lies not with the developer, but with the system. Local Authorities, through PPG3, dictated minimum density levels for new developments. As the densities rose, landowners saw their assets rise in value - especially when at the same time house prices were well and truly on the up. This led to further density increases to pay more for the land... and so on. When there was a market for these properties, no-one complained. But as we know no market is sustainable forever, and the result is the current glut of unsold apartments (anyone care to tell me at what point does a flat become an apartment...) sitting on housebuilders' books, and also the number of repos now selling at 50% or less than their height-of-market value, whic of course adds to the improbability of the developers (and non-distressed sellers) moving theirs.

    I think you would find, if you spoke to them, that most developers would LOVE to build little terraces and 3 bed semis all day every day - but the economics simply don't work. New build prices are governed by several factors - primarily land cost, materials, labour, overheads, and profit. In the current market, 'new build premium' is almost eradicated, therefore margins are tight to say the least. Developers only make money when the market is good. In bad times, they still have to build - and survive off any profits made in halcyon days.

    I would be interested to know what incentives you would suggest - and where would they be coming from? Also, where would the buyers be coming from? The second-hand market, which is around 20% cheaper than new-build, is struggling to attract buyers...

    • 11 August 2010 11:31 AM
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    I live in an area where there are literally thousands of unsold empty flats. All of them over priced. Builders have used the affordable housing bandwagon to build quite the opposite. All we seem to get are two bedroom two bathroom flats and four/five bedroom town houses. I would like to see the builders given proper incentives to build three bedrooms terrace houses or semi's and two bedroom apartments. Even maisonettes would be a step forward.

    • 11 August 2010 10:48 AM
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    Liam Bailey - If you are reading this, please tell me how the land market could possibly become MORE parochial than it currently is... and always HAS been??

    Location, location, location. Did you not attend that lesson?

    • 11 August 2010 09:30 AM
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