What next for property prices?

As the house building industry holds its collective breath waiting to see the impact of the stamp duty holiday being phased out, Savill’s increased their forecast for 2021 whilst admitting it’s a tricky business predicting property prices over the next year or so.

That comment may win an understatement of the year award. Their own reworking of forecasts is evidence of that difficulty as Savills are on forecast 3.0 for 2021 – initially predicting 0% price growth, then uplifting it to 4% in March and now more than doubling it to 9% for the calendar year!

Supply of second-hand property to the market remains muted and supply chain issues and covid restrictions have throttled back housebuilder production to the homes market – all serving to put upward pressure on prices.

On the demand side, many buyers have accrued savings during the pandemic and are using that money to move up the property ladder. Motivated by more outdoor or working from home space larger properties are seeing a higher percentage increases in price. 

But what are the threats to the current levels of demand? Typically low cost and good availability of mortgages and high levels of employment have underpinned house prices. 

As it stands, interest rates are incredibly low in historic terms, although with rising inflation there is an expectation that the Bank of England may increase the base rate to stem the increase in general prices. Any increase will push up the cost of mortgage finance and potentially soften demand, however, changes are likely to be small and gradual to avoid undermining the wider economic recovery.

And with the economic recovery in mind, we appear to be enjoying a V-shaped sharp recovery with unemployment less than a quarter of a percentage point higher than before the pandemic. Whilst there is speculation that the end of furlough may precipitate some additional unemployment this feels unlikely given the huge rise in vacancies in many sectors likely to absorb job seekers.

In summary Savills concluded “we see nothing on the horizon that would trigger a major house price correction”. I see no reason to disagree.

He’s back!

Former Persimmon CEO, Jeff Fairburn, has re-entered the house building limelight in the past few weeks. 

You may recall Fairburn departed Persimmon in 2018 after his nine figure bonus payout caused outrage after critics linked his personal financial success with the government-supported help to buy scheme. Persimmon stuck with him for a while despite the negative PR but a very awkward interview between Fairburn and the BBC seemed to be the final straw as Persimmon sought to limit reputational damage and parted ways with him shortly afterwards.

He resurfaced in January 2020 as CEO of Berkeley Deveer, a small Yorkshire based house builder who completed around 100 homes a year.

This appeared to be a relatively low profile appointment by industry standards. However, all that changed when Berkeley DeVeer, aided by a US private equity business, bought Avant Homes: a house builder with regions across the midlands and north of England and a turnover of about 15 times that of Berkeley DeVeer.

Interestingly Colin Lewis, the outgoing CEO of Avant, turned down the opportunity to be Fairburns’ deputy simply stating “I have my own reasons”.

Only time will tell how the new incarnation of Avant performs and how Fairburn’s reputation is perceived by industry commentators.

10.2% Annual House Price Increase

It seems not even a global pandemic can stem the British appetite for buying homes. The ONS published figures showing an increase of 10.2% in the year to the end of March – the fastest rate of price growth since 2007.

Commentators are putting the demand down to a shift in homeowners requirements for more outdoor space and suitable working from home room. This appears to be supported in that the increase in prices for detached homes is 11% where it is around 5% for apartments.

It’s worth noting that housing completions dropped off significantly during April: 38% lower than March. However, context is important. April’s completions were still higher than any other April since 2007. The discrepancy between March and April may well have been the rush to complete before the anticipated end of the stamp duty holiday – which of course the Chancellor extended.

So what of the future? Is the bubble about to burst? Analysts don’t seem to think so.

Nationwide, the second biggest mortgage lender in the UK, still believes prices will continue to edge higher over the next five years, regardless of the stamp duty holiday coming to an end. 

Savills supported this sentiment when they upgraded their forecast from zero to 4% house price growth in 2021 and a total growth of 21.1% for the five years from 2021 to 2025.

Knight Frank are even more bullish with a forecasted rise of 5% on average for the UK for 2021 and 25% over the next five years.

Five Ideas for Better Onboarding in a WFH/Hybrid Environment

Speaking to a number of house building MDs over the past few weeks a common theme has come up: onboarding of new recruits.

This is proving a challenge as many people are working from home to a far greater degree than ever before. It’s just harder to recreate the informal ‘welcome to the firm’ experience with a half empty office and reduced time for new employees to spend directly with colleagues and their manager.

So here are five ideas to help you adapt to the present (and maybe future) working arrangements:

1.Create plenty of post-offer touchpoints with new recruits

Forming a positive working relationship with your new employee before they start is more important than ever. Use the time they are serving notice elsewhere to arrange to meet up, chat on the phone, or have a video call to talk informally. Do this multiple times.

Focus your conversations around how their first few days and weeks will look and who they will be working with most closely. Give them plenty of opportunity to ask questions and signpost them to people in the business who can help them with their settling in period.

2.Encourage a collaborative effort to welcome a new starter

Get your colleagues to take joint responsibility for welcoming your new starter. Task them with coming up with ideas to help your new employee find their feet. This could be anything from showing them around the office to organizing a zoom lunch for the whole team. This way there will always be someone in the office who is helping the new starter bed in and will demonstrate that everyone is invested in them being a success.

3.Establish two way feedback early and often

Create a regular confidential process which allows you to both provide and receive feedback from your new employee. You won’t have as much opportunity to pick up on the informal signals from your team or the individual as to how the first few weeks are going so having a clear, discrete process that creates a new channel for feedback is crucial.

If there are any problems you will be able to respond before it’s too late. Keep in mind a new starter may be reluctant to speak up about concerns so creating the right environment for them to do so is critical.

4.Trust the abilities of your new starters and build their confidence

House building is a traditional industry which offered very little remote working before the pandemic. For that reason many senior managers have been on a journey of developing trust in employees they are no longer sharing an office with for five days a week. It’s crucial that this trust is extended to new starters. Remember why you hired them and what they bring to the business.

Avoid the temptation to micromanage and, instead, focus on building up their confidence to work autonomously and take ownership of their workload. Be clear and realistic about what you expect from them over an initial time period. Their path to productivity will be much quicker as a result.

5.Create a well-documented remote onboarding process

Formalise your onboarding changes into a universally agreed upon process which is clearly documented. Make it part of your company culture and a consistent set of action points that give every new employee a great start to working from your company whether they are in the office, working remotely or a hybrid.

I hope these points give you some ideas on how to improve your onboarding process for your new colleagues. 

If you have any questions or suggestions not mentioned here I would love to hear them. Feel free to email me or give me a call on 07946 577145.

Simon Edbury

12 Housebuilding Months in Review

I don’t mind admitting I have been amazed how well the housing market has thrived during the last 12 months. When we went in to lockdown early last spring two of the three pillars of a strong property market were in serious jeopardy. Employment and availability of mortgage lending were facing a huge threat in a world of uncertainty. 

Whilst mortgage lending criteria did undoubtedly tighten it never reached the restrictions seen in the financial crisis of 2008. Furlough rode to the rescue of the wider employment market avoiding the catastrophe of mass layoffs and subsequent mortgage defaults or distress selling of homes.

After lockdown 1.0 lifted the property market came back with a vengeance. Whether it was the need for better working from home space, a garden or simply an extended period of time in a home they didn’t like buyers raced to the market. Housebuilders were already making up for lost time in sales when the Chancellor turbo boosted the market with a stamp duty holiday. Cue: a buying frenzy.

Housebuilders’ forward sales positions strengthened by the week during the summer but with no sign of the end of the pandemic they were very wary of increasing staffing overhead. Many questioned whether this was simply pent up demand from the first lockdown which would quickly evaporate as the wider economic realities began to bite.

An extension of furlough helped to avoid any dip in buyer interest but the announcement of vaccine discoveries during the autumn became the milestone in terms of staffing. With many housebuilding senior management teams seeing this as the beginning of the end of the pandemic they were far more confident about recruiting senior staff in to their business. The result over the past four months or so has been as competitive a staffing market in house building as I have known in 25 years.

I have seen salary band busting offers to strong candidates and ferocious counter offers by house builders desperate not to lose key members of staff. Many candidates have reflected on their employer’s reaction to the past 12 months and have chosen to reciprocate loyalty or equally decided to move on to a new challenge. 

As we progress through 2021, I expect to see those house builders who have embraced new working practices (some working from home, greater flexibility and trust) and permanently embedded them to reap the rewards in terms of both recruitment and staff retention. There is no doubt that employees expectations have been reformed by the pandemic and in an industry which is so short of experienced staff meeting those expectations will be critical. 

I would love to hear your experiences over the last year and what you expect from the remainder of 2021.

Feel free to email me or call me on 07946 577145.

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.