House building surges as controversial Help to Buy scheme kicks in
New figures have revealed a fresh wave of house building, sparking debate over the controversial Help to Buy subsidy
The residential sector saw year-on-year growth of 29.5 per cent in the first quarter of this year and rose to its highest level since the start of 2008, according to the Office for National Statistics.
The underlying value of private residential projects starting on site was also 15 per cent up in the three months to May compared with the same period last year, according to Glenigan.
Andrew Whiffin, economist at Glenigan, said a rash of large schemes starting in May, including a £180 million Help to Buy-eligible development in Brentford, showed ‘the Government’s [Help to Buy] scheme is helping to boost construction activity in the sector’.
Booming consumer interest in the equity loan initiative – which launched in April and offers buyers up to 20 per cent of the cost of a new home below £600,000 – suggested ‘early signs of a pick-up in the housing industry,’ said CBI head of housing policy Lucy Thornycroft.
More than 4,000 people reserved homes in Help to Buy’s first two months. The scheme is for new-build homes and is set to run until April 2016. In January, the government will launch a mortgage guarantee scheme for which all homes, new and existing, will be eligible.
Construction Productions Association economics director Noble Francis said a range of government programmes including Help to Buy had given major house builders an incentive to start building again.
He said: ‘The government’s policies are enabling greater demand, especially from those who were struggling with deposit requirements. The greater demand boosts property transactions and house prices, giving house builders more confidence that they can build more homes but still keep similar margins and the asset value of the land.’
The demand-side stimulus would take time to impact supply, suggested Francis, ‘but house building appears to be growing considerably, albeit from historic lows that are less than half the number of homes we need to meet the number of households we are creating.’
Current house building levels in England are 115,000 a year, almost half the 220,000 required annually to meet the country’s needs. Private houses completed last year numbered just 88,000.
New data from the Land Registry figures showed house prices were 5 per cent higher in April 2013 than in the same month the previous year. Critics have argued the three-year long Help to Buy programme will increase property prices, creating a house price ‘bubble’ in the short term but do little to boost housing in the long term.
Speaking to The Guardian, leading analyst Albert Edwards from Société Générale called the chancellor’s flagship programme ‘moronic’, saying that it was artificially inflating property prices, potentially driving young people into ‘indentured servitude’.
Mark Farmer, head of residential at EC Harris, said: ‘There is no doubt Help To Buy has kick-started the UK housing market but I doubt we will see significant uplifts in new supply from house builders, who are carefully managing their cash position.’ But Farmer dismissed talk of a ‘house price bubble’, adding: ‘As long as the government provides a “soft landing” on expiry of the scheme the market will hopefully be self-perpetuating at that point, with sustainable price growth levels.’
Comment: Private housing green shoots?
Andrew Beharrell, Pollard Thomas Edwards
In London and the South East, we have been experiencing a steady increase in new enquiries for several months, along with increased confidence from clients to revive stalled projects. However, the planning system remains a significant constraint on the speed and certainty of delivery. There is evident strain between, on the one hand, central government’s encouragement of economic growth and, on the other, local authority resistance on behalf of electorates who fear development. We are therefore seeing increased recourse to the Appeal route.
Hugh Petter, ADAM Architecture
We are seeing a significant upturn in master-planning and commercial housing projects generally and, in Cornwall, where we are working as master-planners and co-ordinating architects for the Duchy on Nansledan and Tregunnel Hill, the house-builders are selling houses off plan to local people. The Duchy requires their consortium of developers to use local materials, building components and companies whenever possible: there has been a good deal of press locally and on the BBC in recent weeks about the significant economic dividend that this is bringing to that region.
Mark Power, Mark Power Architect
We are seeing more enquiries for individual houses as well as for private housing developments in London. Affordable housing is still difficult. One problem that RSL’s and Trusts are coming across is the high cost of sites particularly in central London, which challenges the viability of schemes. The relaxation of planning constraints on the change of use for offices to residential may have very localised positive effects, although the conversion of redundant office space into residential space comes with its own particular challenges, not least environmentally.
Chris Bennie, tp Bennett
Barrattt and other major housebuilders are on the public record crediting the government’s ‘Help to Buy’ scheme as a significant contributory factor in the increase of domestic housing sales in the first half of this year but there is some concern as to whether this initiative might also stimulate domestic demand for second homes and buy-to-let investments, rather than addressing the real issue of affordability and supply for first time buyers in the domestic market.
Similarly, the recently adopted planning measures to grant permitted development rights for office to residential conversion should help to stimulate more housing starts but again there is the issue as to whether this will simply provide more units for investor sale off-plan in Singapore, to the benefit of housebuilder’s shareholders, rather than addressing UK housing need.
While on one hand we can all applaud increased housing starts and the provision of affordable housing units that goes with this, on the other it might continue to drive an upward spiral of house prices, adding to the problems for first- time buyers. Housing starts are no longer the primary yardstick and true indicator of health in the domestic housing market that they were for several decades post-war, when private investor demand for new housing stock was almost non-existent.
Chris Roche, 11.04 Architects
The North-South divide in economic opportunity and division will soon be replaced by a big hole in the property ladder. Whilst confidence appears to be returning to the residential sector, neither the government nor the banking sector are doing enough to address the structural deficits in housing numbers.
London is leading the way, and in particular former depressed areas of East London are ripe for developers seeking to make a quick profit.
Meanwhile the rental market continues to be overheated, inflating unsustainable rises in house prices.
Chris Darling, Darling Associates
Our experience is that there is a currently an unprecedented central and inner London boom going on. Developer clients are referring to the ‘Dash for Resi’. Partly fuelled by fears that the previously benign planning environment for office to resi change of use in central London may be about to change. But primarily fueled by Far Eastern and Middle Eastern buyers who have stepped in to replace the European investors who came in their droves in 2010-1012 after the pound’s devaluation. One of our recent schemes near Oxford Circus was bought, all 14 apartments, by a Chinese investor who was tracking the Westminster Council web site for planning consents!
Darling Associate shave been commissioned on around 12 new residential schemes in the last 2 months. We are now seeing Chinese pension funds stepping in to acquire large schemes.
Arab Spring has left wealthy private investors in previously stable locations such as UAE looking to hedge some money in London. A leading Dubai developer we met recently referred to the London residential market now being one of the ‘world’s most stable currencies’.
There is still an overall excess of demand over supply – significantly caused by the planning process being laborious, inefficient and often counterproductive. Generally [this is] acting to slow down the supply of new homes which drives prices up and causes affordability issues.