Better news for housebuilding?

The number of new houses completed in recent years has been, and remains, lamentable. With a steadily rising population and huge pressure on existing housing there is no lack of demand, the key to reigniting the housing sector is finding how to release this demand.

The single most significant reason for a sluggish new housing market must be the lack of first-time buyers, and this is primarily caused by a lack of finance. I don’t subscribe to the view that this sector is short of income: the majority of potential first-time buyers, professionals in their twenties and thirties, are currently living in rented accommodation with private sector rents far higher than monthly mortgage payments would be. The problem lies with the need to produce large deposits.

The government, with the mortgage guarantee insurance announced in the November housing strategy, has understood this. I believe that this move, transferring some of the risk from lenders to the developer and the government, will produce mortgages with the lower deposits required.

Initial calculations suggest that first-time buyers should be able to get 95% mortgages under this scheme and estate agents Savilles estimate that this scheme could help fund 33,000 house purchases each year.

However, this is not a magic silver bullet and there are other factors at play that also point to a better market for housebuilders.

The number of completions is now pretty much balanced with the number of sales – meaning that housebuilding is now at a stage where supply and demand are in balance. Housebuilders are reporting significantly better end of year results and even cautiously predicting a better year to come.

Various industry experts are making predictions. These vary substantially, but all paint a broadly positive picture.

Glenigan is the most optimistic, suggesting a 20% growth in private housebuilding with the CPA, not known for groundless optimism, predicting a more modest 2% increase (in sharp contrast to its forecast for a 25% decline in public sector housing).

Business analyst Experian agrees with the CPA’s public sector forecast (suggesting a decade of stagnation in construction as a whole) but is more optimistic about private sector housing starts, which it estimates will grow by 8%.

The Home Builders Federation, in its November survey of members finds that 32% of larger builders expect sales growth in 2012, although that is in contrast with smaller firms where only 2% feel the same.

So what is going on? I wouldn’t say that H+H is exactly ecstatic about the prospects for the next year, but we do feel that the outlook is more positive than it has been since the collapse in 2008/9.

Recent positive news from housebuilders on their earnings and projections for 2012 are encouraging and, providing the government holds its nerve and manages to implement its proposed changes to planning regulations, an easing of planning constraints should also help with the availability of land.

While all these signs are positive, it would be unrealistic to expect any sudden return to the building levels of 2007. A more measured reading of the market conditions suggest a very slow increase year-on-year with my own estimate being that more rapid growth cannot be anticipated before 2014 when NPPF planning reforms begin to have an impact.