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Housing market gets lift from Help to Buy

Help to Buy boosts confidence, but lack of development funding and planning changes pose a risk to sector, according to UK housebuilders.

Knight Frank has released its annual report on the new-build housing sector, based on a comprehensive survey of senior executives from over 100 housebuilders and developers in the UK.

The Knight Frank Housebuilding Report 2013 includes details on which issues are concerning the industry, reactions to Government policy announcements, levels of buyer demand  (for property type and size) across the country and industry forecasts for activity and prices in 2013.

It finds:

* The funding landscape is changing – both for development and for purchasers. More than 75% of respondents expect a rise in the availability of private equity funding to build, including mezzanine and “blended” funding products. But a lack of development funding remains one of the key risks to the sector, the survey showed The level of respondents stating that lack of mortgage finance was a risk factor dropped from 70% to 57% following the Budget in March, when the Chancellor announced the “Help to Buy” scheme; * The strongest market demand is for three-bedroom houses; however, respondents report a noticeable increase in demand for apartments – 75% said there was moderate or high demand for two-bed flats in the East and West Midlands. This points to potential “green shoots” in the regional city-centre new-build markets; * 65% of those surveyed expected start volumes to increase in 2013 while 59% expect new-build prices to rise. 61% expect land prices to rise in the next year; acquisition of land for development is also expected to increase; * “Planning by appeal” is seen as a key new trend; more than 40% of respondents say the number of appeals in their market has risen over the last 12 months as the NPPF beds in, and nearly half say the number of schemes granted permission after appeal has increased; * 77% of respondents said that the Community Infrastructure Levy (CiL) poses a risk to the industry in the coming year.

Gráinne Gilmore, head of UK Residential Research at Knight Frank, said: “Housebuilders are optimistic that development volumes will rise this year, and this view has been supported by their strong start to the year, with many reporting a surge in buyer activity after the start of the Government’s Help to Buy Scheme. Such an uplift in volumes is welcome, but the large demand and supply gap in housing is unlikely to be bridged any time soon.

“Despite signs that buyer activity has risen, housebuilders are still facing strong headwinds; the difficulties in accessing development funding, the new Community Infrastructure Charge as well as the roll-out of new planning rules under the NPPF. Indeed the new planning regime has led to a new dynamic of ‘planning by appeal’, which seems to run against the localism ideas which underpinned the new planning legislation.”

David Fenton, Knight Frank head of Regional Land, said: “Across the UK we are seeing a resurgence in acquisition activity and construction from the major PLC housebuilders. It is clear that sales rates have improved as a result of Help to Buy and there is an atmosphere of positivity in the market.  Many of the regional builders are now looking at substantial sites to develop as consortia; these schemes in many cases have elements of much-needed infrastructure, and will contribute more than just housing to benefit wider regional communities.”

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