April saw the official announcement of a “double dip” recession, and the DCLG tells us that housing starts in England in the first quarter were 15% down on last year. So why are the housebuilders sounding so cheerful and what do their pronouncements mean for the materials producers and sellers?
The last month has seen most of the major housebuilding companies reporting on their performance. Reading these figures in isolation is a positively cheery experience, particularly looking at the number of reservations achieved. Reservations are a great indicator of activity to come as they report sites with buyers ready and waiting for the houses to be completed – tradesmen onsite imminently.
Galliford Try comes in with the most impressive figures – reservations up 43% on the same period in 2011. Bovis, reporting on the 19 weeks to May, suggests an impressive 33% rise and Barratt 25%. All are reducing their net debts and suggesting improved profit figures for this financial year.
The HBF/Glenigans figures too suggest an improvement: these are reporting on planning applications for private sector developments and concluding an overall national rise of 10%. Data from the Bank of England is also encouraging with the number of loans for house purchase in April up 12% compared with last year.
So how do you account for the DCLG figure of 15% decline in starts? Personally, I can’t: and that’s despite some fairly persistent questioning of the organisations concerned.
Certainly our own sales, although holding up well compared to 2011, are not showing the double digit rise that you would expect to follow the reservations figures. So why the discrepancy?
There will always be a bit of a lag between planning approvals / reservations and site starts, but the lag seems particularly dogged this year. I would suggest five possible reasons:
- The weather – need I say more?
- Consolidation – the housebuilders reporting great figures are the larger players. Does this suggest that smaller independent firms are having a much harder time?
- Social housing – even if we accept the housebuilders figures at face value, the dramatic fall in public sector housing starts is going to have a major impact on the overall figures.
- Geography – the housebuilders reporting good news are largely based in the South East where the market is supported by significant growth in the Greater London area.
- A decline in confidence. There is nothing like being told we are back in recession to create a pause in major investments. We think this is starting to have an impact in the renovation sector too, with householders putting off the start of their extension, just in case…
Despite all of these reasons not to be cheerful, I cannot entirely dismiss the positive noises coming from the housebuilders. Surely reservations really are the most accurate figures on which to base a forecast? These are actual, individual property designs to which a buyer is firmly committed. Building will start.
This could potentially create a sudden demand for capacity and manufacturers will need to be able to respond fast. Continuing bad weather is only likely to exacerbate this position as it causes further delay in projects coming to site. So I remain optimistic about the prospects for 2012 as a whole. Provided it stops raining before everyone knocks off to watch the Olympics we should see an interesting summer.