Residential Development Market
2018 has been an interesting year with the macro Brexit politics creating an element of caution in the market combined with several micro political changes including a new housing minister, a new NPPF and the new London Plan consultation. One thing appears clear though in terms of developers’ requirements, London is not the only game in town and there has certainly been a more even spread of growth and demand throughout the country which is in contrast to the London and South East focussed demand and growth of recent years.
This is a positive message and while there appears to be a constantly moving political landscape, one thing is certain, there is demand for housing and therefore continued demand for land. 2018 has, in part, seen a shift in how this housing is delivered. Developers have expanded their playing fields and are looking nationally for opportunities as well as providing alternative tenures over and above the typical private and affordable, with those products such as discount market sale, discount market rent, build to rent and co-living having an increased presence.
Most developers are expecting to increase the number of construction starts over the next year in comparison to the previous 12 months. With the recent housebuilder and housing association mergers and acquisitions and an increasing presence of funds investing in the residential market place combined with the Government’s push for housing delivery, this intention is unsurprising.
The South East and the Midlands appear to be the key locations of choice for housebuilders at present, and whilst there has been a traditional focus on the larger housebuilders, the Government has made a conscious effort to support the smaller developer over the last 12 months, evidenced by the £1Bn loan scheme agreed with Barclays Bank to support SME housebuilders agreed in September. Furthermore the L&Q Foundation has commenced its BME initiative to focus on smaller sites providing sub 50 units.
More than 8 out of 10 of the 144,000 new buildproperties have been bought by first time buyers
Whilst there has been caution around the new homes market, there are still plenty of buyers out there and the recent subdued demand for mortgages combined with new lenders in the market place has in turn led to higher competition resulting in lower rates and higher loan to values being available, therefore making it an attractive time to buy for those in a position to do so. This combined with plenty of demand from developers both small and large suggests all is not ominous.
A significant driver of new build transactions over the past 12 months has been the Help to Buy equity loan scheme, which has supported more than 144,000 new build purchases since its introduction five years ago. The scheme’s extension was announced in Q4 of 2018, and will now continue until 2023, but will be restricted to first time buyers only from 2021.
More than 8 out of 10 of the 144,000 new build properties have been bought by first time buyers. This extension has provided much needed clarity, and has been welcomed by most major housebuilders.
Whilst the market is not without its challenges with Brexit on the horizon and the potential impact on labour availability and investor appetite, there is continued demand and clearly there are developers intent on supplying new housing. Housing delivery is a key focus of the Government and the autumn budget proposal to introduce new permitted development rights, allowing commercial buildings to be demolished and redeveloped as housing, is evidence that it is continuing to propose new initiatives to assist developers.