Hometrack’s latest Insight Paper analysis compares the new build landscape of 2006/7 – at its peak – with that of today and looks at the challenges faced by developers in adding to supply.
By breaking down private housing starts by type and size, the findings show how developers have adapted – both by product mix and geography – to meet demand from buyers with existing equity.
Today three and four bed houses account for two thirds of all starts and the number of new two bed houses being built has surpassed that of two bed flats. Furthermore, one in every three new homes currently being built is a house in southern England.
The paper suggests that for developers London and the South East are becoming congested, highly competitive market places in which to operate. Hometrack’s analysis looks at what has been happening across selected cities around the country, taking into account housing starts and price growth relative to the peak. It highlights opportunities for those house builders prepared to look further afield. In Manchester for example, housing starts are at 31% the level they were at the peak and average prices 15% lower. Only in West and North West London are volumes and prices ahead of peak levels.
Finally, the paper looks at the prospects for NewBuy through unique affordability analysis which compares the cost of purchasing a new home under NewBuy to the cost of renting or buying via a shared equity product such as FirstBuy. The findings show that outside London, NewBuy is not as attractive a proposition as a similar equity loan based scheme and that on (a national) average financing a NewBuy purchase is more than 25% the cost of renting.
Richard Donnell, director of research at Hometrack, said: “In spite of the wider economic downturn, the house building sector has proved resilient, with many companies continuing to report profits. New build volumes across the UK are up by almost three quarters on 2009, but remain less than half the levels recorded in 2007. House builders have been quick to identify and target changing demand. However increasing competition for sites and buyers in the congested ‘low risk’ areas of London and the South East suggests that now is the time to look further afield. There are many locations where a deficit of new supply and opportunities for growth exist.
“House building and construction play an important role in the wider economy, making a significant contribution to GDP growth – a fact acknowledged by government. NewBuy is the latest government initiative to kickstart the housing market. However Hometrack’s analysis shows that with mortgage rates averaging around 5% (compared to typically 3.5%), the weekly repayment costs are higher than those of an equity scheme such as FirstBuy or renting. This will ultimately impact on the attractiveness of the product relative to other choices.”