Housing Demand – Where do we go from here?

House prices have increased an average of 18% since the first lockdown two years ago. A combination of limited properties on the market and a herd of buyers looking for more space fueled the huge price growth.

But conditions are changing. Inflation is officially running at around 7% but household necessities such as domestic energy and petrol cost 30-50% more than just a few months ago. Add in increases in taxation and most household budgets are under a new level of stress. 

And then there are interest rates. Up to 0.75% from a pandemic low of just 0.1% with the hint of more to come as the Bank of England looks to get inflation back to a manageable level over the remainder of 2022. 

Typically, this level of pressure to affordability would be damaging to the property industry and likely produce a leveling off of prices. But, for now, prices continue to surge. Using data from Reallymoving which captures prices agreed between buyers and sellers seeking conveyancing quotes (typically around 12 weeks before completion) the whole of the second quarter will continue to see strong price growth. 

This may simply be the lag between domestic cost increases happening and homeowners feeling the bite and altering their decision-making accordingly. Only time will tell, but if there was one thing the pandemic taught me, it was never to underestimate the British public’s desire to buy property regardless of the wider context!

Buyers swaying towards new build

Whathome.com recently ran an interesting poll which concluded that 67% of buyers across all regions and buyer types would prefer new build to period property.  

The covid pandemic has changed the way people use their home with many working from home and spending more time entertaining in their own property. New properties are designed with these new requirements in mind and require less adaptation than older homes. 

Buyers are increasingly conscious of reducing energy consumption both to reduce their own carbon footprint and managing spiraling energy costs. This is an area where new homes are a clear winner. 

Access to green space completed buyers top three priorities after energy efficiency and a home office.

It will be interesting to see if these findings become more prominent in house builders marketing over the coming months.

Bridgepoint Sells Miller Homes to Apollo

The sale of Scottish headquartered Miller Homes was completed for a reported £1.2bn to US investor Apollo Funds from previous owner, Bridgepoint Group.

Miller Homes grew significantly under the four years of ownership by Bridgepoint with completions up to 4,000 per annum, turnover exceeding £1bn for the first time and an almost 50% increase in profit.

Under new ownership, Miller is targeting further expansion with the stated aim of building 6,000 homes a year in the medium term. This would represent an increase in production of around 50% on current levels and would likely place Miller into the top 6 house builders nationally.

This is Apollo’s first UK House builder acquisition after losing out to rival Aermont, last year to buy Keepmoat Homes. However, the business does own US house builder, The New Home Company and UK mortgage lender, Foundation Home Loans.

House Prices Continue to Soar

The average selling price for a UK home has cleared £260k for the first time according to Nationwide building society.

Historically low levels of housing stock on the market has created fierce competition amongst buyers. The prospect of rising interest rates later in the year has only intensified the urgency amongst those looking for a new property. 

House prices rose by an average of 1.7% in February alone dragging the rolling twelve month price increase to a whopping 12.6%. 

Given the rising cost of living this has perhaps been a surprise, although it should be noted that competition amongst mortgage lenders has produced some very attractive fixed rate deals in recent months.

How long they remain available will depend on how determined the BoE is to raise the base rate over the next few months.

Likewise, will the forthcoming squeeze on household budgets take it’s toll on buyer appetite?

Only time will tell! But for now it is definitely a seller’s market.

First female house building CEO

Taylor Wimpey broke new ground in the sector by appointing Jennie Daly as their new CEO. No listed housebuilder has ever appointed a woman as their CEO before. 

Daly has been with Taylor Wimpey for eight years in various planning and group operational roles and replaces Pete Redfern who resigned in December for personal reasons. She officially takes the reins after the AGM in April although Redfern’s 12 month notice period allows for a transitional period.

Taylor Wimpey considered multiple external candidates for the position but ultimately chose Daly as the internal candidate. Being able to point to the CEO as having progressed within the business from Planning Director will be a good news story Taylor Wimpey can use to recruit and retain staff at all levels.

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.