Will new Government initiatives aid the housing market?
WILL NEW GOVERNMENT INITIATIVES AID THE HOUSING MARKET?
Richard Beverley, managing partner and real estate specialist at Freeth Cartwright’s Birmingham office, remains optimistic.
Without doubt, 2008 was a torrid year for the house building industry. The constraints on mortgage funding, price falls and a loss of confidence in the market sent PLC house builders into freefall and brought some to the brink of failure, amongst speculation that their covenants would be breached. At the same time, providers of affordable housing soon ran into difficulties as income from shared equity sales dried up for the same underlying reasons.
The ripples of the downturn have been felt right across the supply chain as production ground almost to a halt and the Government’s ambitions for new housing numbers became increasingly unlikely to be fulfilled.
Thankfully, 2009 already promises to be a much better year. House builders are reporting increased sale levels compared with the previous year and significantly more activity in show homes. Whilst some price discounts and incentives are still being offered, the huge discounts being proffered towards the end of last year have all but disappeared. In essence, the industry has almost moved to a position where new houses are being “built to order”.
To add to this, there is a growing recognition and awareness in the market place that now is a good time to buy a new home in terms of affordability, both in respect of price and mortgage repayments. Mortgage finance is still not readily available but HSBC and others have recently announced new products with decreased loan to value ratios and more are bound to follow as house prices stabilise and the spectre of negative equity retreats.
The priority now is for the house building industry, having weathered the economic storm, to turn its attention to medium and longer term planning to rebuild supply. Not only is the immediate availability of finished homes beginning to dry up, but also the sites upon which to build. House builders have not been in a position to replenish their land banks due to lack of liquidity and the need for land owners and funders to face up to falls in land prices.
The Government rightly recognises the need to support and maintain the house building industry. Irrespective of the massive contribution that the sector makes to the economy, both directly and indirectly, the need to preserve jobs in the construction industry and to provide new homes is high on the political agenda.
In the West Midlands, £700m will be invested through the new Homes and Communities Agency (HCA) over the next two years. This includes £300m to provide more than 7,500 affordable homes, £80m to unblock regeneration projects and provide more that 2,300 new homes together with at least 20,000 square metres of employment floor space. This is welcome news, especially as the promise from Paul Spooner, the Regional Director of the HCA in the West Midlands, is that the new money will be used flexibly.
The intention is to use the money to unlock sites that would not be commercially viable for residential redevelopment in the present climate without additional funding. This may be particularly valuable in regeneration areas or in respect of schemes which require costly infrastructure.
Government help is also available to homebuyers in the form of the Home Buy Direct Scheme which provides grants of up to 30% of the total cost of a new home to buyers with a household income of less than £60,000 per annum. This will apply to many families in the West Midlands and represents another Government initiative to bridge the gap between what is commercially available and what is required to get new homes built and purchased.
Going forward, the emphasis for the house building industry is going to be very much on collaboration. This involves Local Authorities both in their role as land owner and Registered Social Landlords (RSLs) fulfilling their objectives in relation to new housing and the provision of affordable homes. It will also involve house builders and developers and the HCA as a source of grant funding.
For their part, the HCA are looking to lead the housing and renewal programmes in the region. Their business model, the Single Conversation, provides one point of engagement with Local Authorities to focus on housing growth plans within their authority area. In return for HCA support and funding, Local Authorities are in turn being encouraged to commit land and resources with a view to bringing forward development in conjunction with private sector and RSL development partners. This may involve collaboration with other public section project partners such as Advantage West Midlands.
The economic downturn has affected everybody in the housing supply chain and whilst, understandably, in the immediate aftermath all concerned have been looking to take actions to ensure self preservation, the emphasis is now very much on working together to rebuild supply.
There are certainly encouraging signs that the housing market is in the early stages of recovery, but there can be little doubt the effectiveness of the collaboration between interested parties will be key to ensuring that the initiative is maintained.
ends - 26 May 2009
Richard Beverley, real estate specialist and managing partner of Freeth Cartwright’s Birmingham office.
Tel: 0845 634 2577
Email: richard.beverley@freethcartwright.co.uk