Back to Blog
25 August 2009
We are beginning to see signs of stabilisation in the housing market, which is encouraging, but can this be sustained? The availability of finance for mortgages and development is key, but it is unknown when the supply of funds will improve.
As the Bank of England has stated earlier this month, “It will take time for banks to repair their balance sheets and they face considerable challenges in replacing those sources of funding that dried up in the financial crisis.”
Housing demand gets ever greater, but additions to housing stock levels are negligible at present which will have significant social and economic consequences in the future. Therefore if we don’t increase housing supply the need and demand will only ever increase for those seeking a home.
Caution required
The modest signs of improvement in terms of housing starts and prices are welcome not least to housebuilders and developers who have endured a very difficult period in the last 18 months or so.
However, I would still remain cautious with respect to the housing market. Housing starts remain 53% lower than their peak three years ago and lending is still 36% below a year ago. Indeed it is still the lowest July lending figure since 2001.
The positive news in the housing market comes from an unprecedented low earlier this year. Furthermore, there are three key risks to recovery in housing. With unemployment continuing its rise towards three million, this could result in a fall in demand for house purchases and an increase in supply from those forced to sell.
Secondly, recovery in the housing market is heavily dependent upon the availability of finance rising further and while it has increased over the course of this year, this has been from unprecedented lows. It will need to continue rising to meet the pent-up demand for housing in this country.
Finally, there are concerns that even when demand does pick up, then the industry has lost much of its capacity to deliver due to this recession.
Affordable housing
The supply of affordable housing has been nearly as hard hit as private housing due to the fact that much of it today is delivered through Section 106 agreements and cross subsidy from homes for sale. The upshot is that housing associations have been as badly affected by the recession as housebuilders have.
The latest thing that will add to the difficulties of the associations is rental levels being reduced by 2% next year which will affect their incomes further. It is predicted that this could lead to a reduction of 4,000 new affordable homes being built each year.
Dealing with the housing crisis
I don’t believe the Government is addressing the issues with anything like the vigour that they should be. What is the plan for the future? The nation has a housing crisis and we need a robust plan to deal with it.
The Government has introduced a number of short-term measures but whilst these have been welcome, many of them have been robbing Peter to pay Paul. The effect so far has been of increasing the uncertainty around such worthwhile programmes as the Decent Homes standard and the removal of funding to assist some new developments to move forward.
The Government also needs to address continuing shortages of permissioned land, and the impact of regulation and policy on development viability, both of which are major barriers to a sustained recovery in house building.
The time taken to receive planning consent is still not nearly as good as it needs to be. If everything else was right in the housing market, which of course we are a long way from at present, we are not going to be able to improve supply if planning remains as it is now.
The supply of new housing ought to recognise the demands for sustainability not least the Code for Sustainable Homes and the requirements to comply with it. This means we need increasing numbers of homes that are suitably efficient to meet the Code. This increases development costs significantly thereby reducing viability at time when increasing supply is a priority for the nation.
So, in summary, recent news in the housing sector has been positive, but there are downside risks and, as a consequence, I believe we need to be cautiously optimistic about a sustained recovery at this point.
Enjoy this post? Get more like it by subscribing to my blog either by clicking on the RSS feed link at the top right of the page or by emailing group@cpplc.com
Back to Blog
Information correct as at 25/08/2009