Housebuilding Expectations for 2022

So another year draws to a close……

…..And what a bumper one for house builders. The market continued to fly and house prices increased by over 10% for the year, largely driven through a lack of supply in both the new and second hand market.

Many house builders told me they are between six and nine months forward sold. In fact, many sales departments have very little to sell as global supply chain issues have limited the supply of building materials and therefore the rate of production. Coupled with many mortgage lenders having a six month expiration on their offers buyers are unable to commit on completion dates so far into the future. 

So how will these conditions alter as we enter 2022?

The consensus amongst key market forecasters such as Savills and Rightmove is a continuation of property price growth albeit at a slower rate than this year. Expect an annual increase of around 3-5% across the UK, although it’s worth noting that the Midlands and North of England will be key drivers in that figure as London’s price growth will lag behind at around 1.5%.

The potential slowdown in price growth is attributed to an increase in supply in both the new and second hand market. Agents are reporting an uptick in requests for valuations and there is an expectation that building material shortages will ease for new builds.

How will this impact staffing in our sector in 2022?

The first half of this year saw a phenomenal bounce back of demand for staff following a flat 2020. Competition for all levels of staff was intense leading to strong offers and fierce counter offers by current employers to retain staff. 

This eased in the second half as some house builders paused to assess the impact of the end of the stamp duty holiday on sales but has regained impetus over the past couple of months.

For 2022 I expect very strong demand for the very best candidates in house building. Likely to have enjoyed pay rises and healthy bonuses this year they will be hard to tempt away so any employment proposition will need to be very compelling, both financially and in terms of flexible working. The alternative will be settling for average in terms of skills and capability.

I am expecting quite a divide between those firms whose approach to recruitment is match fit and those who are limited by pre-pandemic thinking. The impact of those recruitment decisions will be far reaching if a company’s people really are it’s greatest asset.

Thanks for reading. Have a Merry Christmas and a prosperous New Year.

Was the Stamp Duty holiday a success?

The stamp duty holiday introduced in the first half of 2020 has finally come to an end but was it a success?

As a house builder, anything that incentivises customers to buy is a good thing, surely? Well, that is probably true but at a cost of around £4.7bn to the taxpayer did it represent value for money? 

One argument is that it was totally justified as a wider economic stimulus. When people move house they spend money on sprucing up their existing property ready for sale, on estate agents, solicitors and removers and then spend again on their new property when they move in. All of this creates demand for goods and services in related industries, and increases HMRCs VAT receipts in the process.

The counter argument is that it just wasn’t necessary. The housing market boomed the moment the first lockdown was lifted and predated the stamp duty holiday. The removal of SDLT below £500k simply fanned the flames of an already red hot market. The effect was that demand significantly outstripped supply of both new and second hand homes and pushed up prices by as much as 20% in certain areas and at an average of 10% across the UK. This moved property further away from first time buyers.

Regardless of which point of view you align yourself to, the pandemic has limited house builders’ ability to fully capitalise on the upsurge in demand. Builders have been forced to build more slowly as a result of lockdowns, social distancing requirements on site and disruption to supply of key building materials. Many are 6 to 9 months forward sold and have very little to offer customers who want to move quickly. 

The net effect of the pandemic was a reduction of 19% in new homes completed by the largest 25 house builders in the UK during 2020. That is a drop from 110,000 homes to just over 90,000. It’s noteworthy that many builders are expecting their 2021 output to recover to 2019 levels.

Rather than reflecting on the past perhaps it’s more worthwhile to consider the immediate future. Has the stamp duty holiday brought forward purchases that would otherwise have happened over the next twelve months leaving leaner times ahead? Or was it the case that the tax break incentivised people to move who simply wouldn’t have done at any point therefore simply boosting the overall sales number?

My contacts still tell me that buyer demand for homes is outpacing supply.  And that demand is supported by high levels of mortgage availability, rock bottom interest rates and strongly recovering employment statistics. For now, it appears the house building market can cope perfectly well without SDLT breaks.

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.