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Three Things on my Mind

With the housebuilding industry getting back on it’s feet after lockdown there is plenty to talk about. Here are three things on my mind and I would love to know your opinion. 

Firstly, there is a cut in SDLT making property purchases up to £500k tax free. Clearly the chancellor is trying to stimulate the property market with a greater impact outside of the South East given the lower property prices in the remainder of the UK. 

For a house purchase at the top of this £500k limit it would offer the buyer a saving of £15,000, definitely significant, but for an average priced property in Scotland (£152k), for example, it would only provide a saving of £540. Given the progressive nature of the SDLT the tax break is far more compelling to those nearer to the £500k ceiling than for average or lower priced home purchases.

Any incentive to buy a house is good news for the industry but how impactful do you think this will be in terms of unlocking chains and getting new customers to your sites?  

Secondly, the elephant in the room is the end of the help to buy scheme which has underpinned house builders performance since it’s launch in 2013.

The scheme doesn’t end until 2023 but significant restrictions come in to force next year. Specifically, it will be limited to first time buyers and be subject to regional price caps, therefore making getting a mortgage much more of a challenge for certain buyer groups and reducing the number of properties on which a help to buy equity loan is available. 

In light of the economic impact of Covid 19 does the government need to step in and extend the current version of the scheme to help sustain the housing market?

Finally, it’s widely accepted that the fortunes of the housing market are inextricably linked to mortgage availability, cost of borrowing and levels of employment. Currently, there are still a number of high LTV mortgage products on offer and the base rate is just 0.1% so how about employment?

Technically, it’s still good but there are over 9 million UK workers on furlough. As the scheme tapers out in early autumn how many of the furloughed workers will have jobs to return to? Will the government’s myriad of loans, grants and furlough be enough to stop unemployment climbing steeply and keep buyers confident enough to purchase a new home?

If you have an opinion on any or all of these topics, let me know via simon@edburydaley.com. Your response will be treated in strict confidence.

Housebuilding’s Response to COVID-19

Firstly, let me say, I hope you and your family are in good health at this very difficult time. I’ll discuss all the key aspects of the impact of COVID-19 on our industry below but keeping safe and well is, of course, the absolute priority.

It took just a couple of weeks from social distancing measures to be implemented to housebuilding sites across the country being closed down. Primarily, this was to protect staff and subcontractors but within 72 hours construction became impractical as getting materials to site became an impossibility.

Furthermore, as sales outlets closed every builder sought to preserve cash and spending on sites in progress no longer made financial sense.

Talking of retaining cash, a number of listed house builders have cancelled planned dividends and many have come to voluntary arrangements with staff to take anything from a 7.5% to 30% pay cut for the foreseeable future. Some have cancelled bonus and pension payments to their executive teams. It is also likely we will see a big reduction in land spend for the remainder of the year.

There’s no doubt the government job retention scheme will help builders slow the drain on cash balances and save jobs during this difficult time. Many sales and site staff are already furloughed. Interestingly, many have been sent home on full pay with employers maintaining the difference between furlough and full salary.

It appears that housebuilders which have chosen to do this are factoring in long term staff loyalty which may be tested in more buoyant times.

With everyone working from home, regular video conferencing calls are being used to keep up progress on ongoing projects and support team morale. A couple of Managing Directors have told me that working from home is actually providing their staff with efficiencies not found in the office.

The biggest distraction is for those employees who also have children at home. Maybe this crisis will change industry attitudes to working from home which have lagged behind many other sectors in the UK.

Housebuilding’s fortunes are always closely linked to the cost and availability of mortgages and already we are seeing changes to lending criteria.

A number of banks and building societies are reluctant to accept any new mortgage applications and have moved the maximum loan to value ratio to just 60%. Some have justified this move on the basis of being unable to complete physical valuations currently.

Others have cited the need to support a high demand of enquiries by existing mortgage customers requesting a payment holiday. Only time will tell if low LTV ratios are a temporary measure or if the lenders persist with much tighter lending restrictions in these uncertain times.  

It’s good to finish on a positive note, so I will leave you with this. Housebuilding has been able to assist in the fight against COVID-19 by supplying desperately needed PPE in the NHS. Several builders including Barratt and Persimmon have responded by donating protective masks to local NHS hospitals. If your firm has been involved in donating PPE, well done!

Another Persimmon CEO Departs

After 15 months in the job, Dave Jenkinson has announced he will step down from his position of CEO of Persimmon. He took over from Jeff Fairburn after the bonus scandal which attracted a backlash of criticism from all quarters. Jenkinson intends to stay on while the firm searches for his successor.

The reason for his departure is far from clear. Jenkinson is only 51 so retirement is not the obvious answer. Although given he received over £40m in bonuses as part of the infamous LTIPs scheme in the past few years retirement would appear to be financially viable!

Jenkinson’s primary objective as CEO was to realign Persimmon’s culture as the firm’s reputation had become increasingly battered by build quality issues and a high number of customer complaints. 

In his statement, Jenkinson said: ‘I’m very pleased with the progress that we’ve made over the last year in reshaping Persimmon’s approach and culture while at the same time maintaining our operational momentum.’

However, an independent review from December, written by Stephanie Barwise, a QC at law firm Atkin Chambers, said there was a failure to meet minimum building standards which was a ‘manifestation of poor culture’. She urged Persimmon to reconsider its ‘purpose and ambition.’

Given the conflict of the two statements, it’s difficult to determine how well the culture reboot is going and if that was a contributory factor in Jenkinson’s decision to leave.

Progress on the New Homes Ombudsman

The Ministry for Homes, Communities and Local Government has announced more information regarding the proposed new homes ombudsman.

The government is eager to create a mechanism whereby disgruntled customers have an independent means of redress. 

The spirit of the ombudsman is clear and forceful from two government quotes: 

“The ombudsman will stop rogue developers getting away with shoddy building work and raise the game of housebuilders across the sector” 

“give people buying a new home the confidence they need that when they get the keys to their home, they are getting the quality they expect.”

But when it comes to detail it seems there is still some way to go. There is no date for the enshirement of the ombudsman in law just “as soon as possible”

Where customers are in dispute with the developer “the new ombudsman will act swiftly and independently to resolve any issues”. It sounds decisive but lacks specifics.

However, it was made clear that it will be compulsory that all house builders sign up to the ombudsman.

It will be interesting to see what adjustments housebuilders need to make to meet the ombudsman’s required standard. Will those adjustments limit speed of production or hit profit margins? And will it actually prove to be a great marketing tool for house builders to tempt second hand buyers into a new home?

Housing Minister Turns Recruiter!

The HBF has launched a report in parliament stating that the new homes industry needs 49,000 new recruits if the government target of 300,000 homes a year are to be built. 

In full sales mode, the document calls on the “brightest and best” to consider a career in house building. Clearly targeting the image of hard hat and muddy boots, it goes on to highlight the variety of positions in housing developers.

“Getting your hands dirty is optional – though construction is essential to home building, so too is finance, design, planning and sales” states the report.

It continues “For the eco warriors, how about becoming a Sustainability Coordinator?” and follows with “A tech whiz with an eye for design? Becoming a Building Visualiser could be for you”

Housing Minister, Christopher Pincher, threw his weight behind the recruitment drive: “this sector is one of the most diverse and well-paid industries in the UK. It caters for everyone from the best and brightest graduates designing and creating the homes of the future to school leavers starting their very first job.”

For once I am inclined to agree!

Customers say there’s still work to be done……

The independent New Homes Review has been released and shows only minor improvements in customer satisfaction in both pre-sale and post-completion. Even with the uplift, only 55% of customers are claiming to be happy with their builder’s service levels after they have moved into their new home.

89% of customers are experiencing snags with their new home and only two-thirds are satisfied with the finish and build quality.

The homeowners alliance focused on the finding that only 64% of new homes are completed on time. Chief Executive, Paula Higgins stated “Developers need to stop over-promising and be more realistic about their timelines, and communicate this to customers.”

The review also cites a small drop from 69% to 67% of customers believing that their new home represented value for money. 

For all the recent soundbites from housebuilders of focus on quality, it appears the customers still think there’s plenty of room for improvement.

Record New Homes Registrations in 2019

Last year saw the highest number of new homes registrations since 2007 with a total of 161,022. Private registrations were 3% down whilst social housing jumped by 13%. Whilst a very small component of the overall market, build to rent leapt by 57%.

New homes completions were marginally up during the year with Northern Ireland, Yorkshire and Eastern being the big regional gainers. Interestingly, London saw a 7 decrease in completions whilst having a 37% increase in registrations.

And for those with short memories a little reminder of how tough times were a decade ago: in 2009 just 88,849 new homes were registered, around 55% of last year’s number. Since then the industry has registered over 1.4 million new homes.

A new version of affordability

The government is currently in a consultation period regarding First Homes. This is an initiative to significantly improve the affordability of housing for local first-time buyers, forces veterans and key workers such as nurses and teachers.

The key principle is designated new homes will be sold at a minimum of a 30% discount to market value. The exact level of discount will be set by the local authority and once fixed will remain in perpetuity on that property. 

So the owner buys at a 30% discount but must sell at a 30% discount after an independent valuation to another buyer who meets the eligibility criteria (ie a local first-time buyer) when they want to move up the housing ladder.

The government is considering whether to use section 106 as the vehicle for delivery of First Homes or to set a separate percentage of units on a development as the house builders obligation. As with current affordable homes the CIL is likely to be waived.

Maybe you have had your say already but if not click here to contribute to the consultation and take a deep dive into the details.