3% price growth for new homes market in 2010

Developers in a strong cash position will undoubtedly move to grow their market share in 2010, by focusing on buying land while prices remain around 20% lower than their peak. The Government’s £400million Kickstart funding programme to help restart activity on stalled sites will also begin to filter through, translating into a moderate increase in housing starts next year. However, supply will remain severely restricted compared to peak levels – in the region of 90,000 completions. This is 60% of the number seen in a typical year and just 40% of the new homes needed annually.

David Bexon, Managing Director of SmartNewHomes.com, said: "We are likely to see an increase in new homes starts next year, from around 70,000 in 2009 to 90,000 in 2010, but this is still falling way short of the numbers needed to meet the worsening shortfall of housing in the UK. The much-publicised Government target of 240,000 new homes per year by 2016 has dropped by the wayside and the current capacity of the weakened housebuilding sector could ensure this kind of output remains totally unachievable next year and probably for the next five years."

With a General Election approaching, housing policy is currently in limbo, but SmartNewHomes.com urges all three leading parties to designate housebuilding targets for the year ahead. The Conservative Party’s Localism policy could have serious consequences for new homes supply, with its proposition that local councils be given the power to make planning decisions with no overriding targets from central Government. This could allow "nimbyism" to flourish and work against improving housing supply.

While housebuilders are reporting encouraging sales rates as homebuyer confidence returns, mortgage lending continues to act as a barrier to market recovery. This applies particularly to the new homes sector, which still suffers from down-valuations by lenders compared to the wider market. However, there are encouraging signs that the mortgage market freeze is starting to thaw, and SmartNewHomes.com expects some lender competition to return in the first half of 2010, with the base rate remaining low at least until the second half of next year. Housebuilders will be working hard to make new homes as attractive and affordable as possible compared to the wider market, with aggressive pricing and incentives.

Bexon said: "I can confidently say the worst is behind the new homes sector. The last two years have seen a significant reduction in the number of players operating in the industry, and many of those remaining are in a strong position to take advantage of lower land prices and growing consumer confidence. While new homes price growth will be minimal next year, the worsening supply shortage is likely to support prices over the longer term."

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