Will Help to Buy Help the Industry Long Term?
The thoughts and opinions of Neil Thomas, Director of Housing at H+H.
As I write this we are coming to the end of a summer filled with uplifting news and events: we have a new member of our royal family, we have all seen a bit of sunshine, Andy Murray won Wimbledon… the list goes on. But, the best news of all is that our industry is showing definite signs of recovery after being burdened with an abundance of doom and gloom since 2008. The NHBC has reported the highest half yearly number of new home registrations since 2008. From January to the end of June 2013 67,422 new homes were registered, a 25.4% per cent increase year on year, and the construction sector in general grew in Q2, for only the second time since mid-2011.
We are an industry wary of upping our levels of positive thinking and optimism; after all we have had our fingers burnt a few times over the past four years. It is this wariness however, that has meant this current upswing in the market has come as somewhat of a surprise and has caught many off guard.
So why the surprise?
After a long time of asking for help and demanding that the Government intervene and provide assistance to get the new build market moving again, they did just that. However, despite the pleas, the Help to Buy scheme still took the industry by surprise when it was first announced in March because we had all been asking for it for some time. I myself started actively speaking about it as far back as 2011. Consequently in my opinion, you the house builders did not have adequate time to plan and truthfully no one knew what level of success it would have.
Prior to the scheme starting house builders had been running their own scheme following a similar principle which, from a manufacturer’s point of view, really didn’t make much of a dent in the market, but on the other hand the government’s scheme really is a no-brainer for the banks, it is effectively riskless for them so perhaps success should have been predicted.
Is it just Help to Buy?
There is no denying that the Help to Buy scheme has been the most significant factor in the change in market conditions, it has channelled significant demand into a short space of time, but I believe there are other factors also contributing to the success.
The weather in the UK certainly has an effect on house building; production essentially came to a halt for around six to eight weeks in Q1. This lost production was moved to Q2 accounting for some of the upturn in registrations in Q1 v Q2 stats. This was compounded by Q3 and Q4 production also being moved into Q2 to ensure that year end completion targets are not just met, but exceeded, which certainly looks to be the case which is good news for all stakeholders.
In recent months land has been snapped up and new show homes have started appearing on sites. The difference now, is that the land will be more profitable than pre 2008 as it is being purchased at a lower price. This leads one to consider that perhaps the homes being built now and in the immediate future may be made more affordable to home buyers given that the land is less expensive.
What happens next?
There is still much uncertainty around whether this success will eventually pan out to be another ‘blip’ in the poor economic landscape of the country or whether it will become the new norm.
As demonstrated with the current situation, government intervention can, and does, cause sudden changes within the industry; just as quickly as works starts, it can stop again. Consequently the market is vulnerable to factors which it cannot control putting it, and the whole industry in a very precarious position.
At the moment no-one knows when Help to Buy will end, my thoughts are that if it is due to end prior to the next general election the Government will do all it can to extend it; a strong housing market is a definite vote winner. If it continues beyond this the next Government will have big decisions to make very early on in its parliamentary term.
Besides from the scheme ending there is also a degree of uncertainty around the government backed mortgage support scheme for the second hand market. It is very difficult to say how many people selling their current home will move into a new build.
There is no doubt that the speed of the increase in demand has put pressure on all stakeholders within the industry but the real problems will occur if / when the scheme ends and mortgages again become the responsibility of the banks. Perhaps by then though they will have repaired their balance sheets more fruitfully and be more inclined to lend to first time buyers with a 5% deposit.
The key question, and the one that no one can answer is – will the new build housing market continue to grow and if so how quickly? Or will we be back to square one come 2015 / 2016? Time will tell.