Private sector developers are responding to the growing demand for homes, driven by the improving economy and supported by Help to Buy. Although private enterprise completions are still about 85,000 a year in England, the number of starts rose by 31% to 54,760 over the six months to September 2013 compared with the same period the previous year, according to Government figures. Much of this new building is supported by the equity loan element of the Government Help to Buy scheme, particularly in lower value markets outside London where take up has been greatest.

Since its launch in April 2013, the equity loan element of Help to Buy has supported 12,875 sales. This is the equivalent of 2.5% of the 515,000 property transactions completed in England over the same period.

For some private developers, the support of Help to Buy has been even more significant. A recent statement by Barratt Developments revealed that 29% of its homes were bought using equity loan in the last six months of 2013.

Housebuilding forecasts

As the housing recovery takes root and spreads to markets beyond London, we expect housebuilding rates to gain momentum in 2014.

Savills Research forecast that the private sector will increase production by 8% a year in the five years to March 2018 – a total increase of 35% over the period. This results in an average output from private housebuilders of 107,000 new homes a year over the next five years.

Historically, we have seen periods of similar growth in the 1980s and noughties but there is no precedent for faster growth over a sustained period. Hence our forecast is the best case scenario for private sector expansion. The numbers are also dependent on finance easing for Small and Medium Enterprises.

Even by increasing output to 107,000 new homes a year, private housebuilders would still be producing far less than the 203,320 they delivered in 1968 when construction peaked. They would also be building less than the 154,210 they produced in 2007.

Other players must therefore step up to close the gap between what can realistically be delivered by the private sector and our growing demand for housing.

Judging from the increase in activity among Savills local authority client base, we expect to see greater output from the public sector. We forecast incremental growth in the number of homes delivered by local authorities, increasing from 1,665 this year to 10,000 in 2018.

Housing associations

We are also expecting to see more building from housing associations. Provided the sector can meet the tight deadline to deliver the 2011-15 programme numbers by March 2015, HAs are set to deliver 26,000 new homes in 2014 and 34,000 in 2015.

Furthermore, continued development at high levels will be needed for the ambitious 2015-18 programme to be delivered.

Overall, we expect to see 119,000 completions in 2014, rising to 167,000 a year by 2018. Whilst this is an improvement, it still short of the 240,000 new homes a year we need to meet household projections.

Supply challenges

As housebuilding picks up, the shortage of skills and materials are becoming increasingly evident. A construction market survey by the Royal Institution of Chartered Surveyors revealed that a shortage of labour, particularly skilled bricklayers, is constraining activity. Bricks, concrete blocks and cranes are also in short supply.

These shortages are a result of the prolonged economic downturn and the decline in construction activity since 2008. The reserve of bricks stockpiled during the recession has now gone and it will take time to build up the materials and train a new generation to use them.

For housing associations racing to produce 170,000 new affordable homes by March 2015, the deadline for the current 2011-15 housing programme, these shortages are leading to higher bills from contractors and questions over whether inflexible deadlines produce best value.

Historically, the public sector has played a much bigger part in housing delivery than it does now. The big housebuilding surge of the 1950s was driven by local authorities, which continued to play a significant part in housebuilding until the 1980s.

Since then, the responsibility for building social housing has shifted to housing associations. Building output from housing associations, often in partnership with private builders, has averaged 25,000 homes a year in England since 2007.

It is crucial that that number continues to grow. The burden of meeting the country’s growing housing requirements can not be placed on the private sector alone. Encouraging a greater variety of players to deliver new homes, as well as promoting different routes to market, such as build-to-rent, would be a great step forward.

Land Prices

Value of development land is increasing

■ The recovery is prompting housebuilders to start building up their land reserves again. This “assertive land buying”, as Bovis put it, is reflected in Savills data. The value of urban land outside London rose by 6.7% over 2013, while the price of greenfield sites rose by 6.5%. In the capital, where demand for homes is greatest, values rose by 13% in the year to September 2013.

■ The strengthening property market is prompting housebuilders to plan for the future by investing in larger sites that take longer to develop and bring to market, most notably in the stronger markets in which it is possible to sell quickly enough to generate a competitive return on capital.

■ Hence the value of a 30 acre site with planning permission grew by 7.5% last year. This rate of growth is steeper than the price rises recorded on smaller sites. Values for one and five acres sites grew by 5.8% and 6.4%.

Taken from
Residential Property Focus Q1 2014