Dual market benefits new housing construction

Image credit: Crymlyn Grove (Barratt Homes)

The general housing market might be slowing but the message from major housebuilders suggests new housing construction remains in good shape. The sector seems largely untroubled by factors - such as high stamp duty and fragile consumer confidence – which are holding back activity in the existing homes sector.

Most indicators point to a weakening general housing market. Although the regional picture varies, figures from Nationwide suggest house prices nationally fell by 0.2 per cent in March and annual growth has slowed to a seven-month low of 2.1%. Meanwhile, Bank of England figures show mortgage approvals in February were below expectations having fallen by nearly 5% to 63,910.

But the latest results from quoted housebuilders suggest a dual housing market is emerging with a thriving new homes sector contrasting with a subdued market for existing homes. Barratt Developments, Bellway and Taylor Wimpey have all seen a positive start to the Spring selling season. All report healthy sales and increased land purchases together with plans for further growth in the volume of building projects this year.

Encouraging picture

The encouraging picture on new build homes activity is reflected in Glenigan’s Construction market analysis. It shows that the number of private housing units included in detailed planning applications entering the pipeline surged by 19% to 166,341 units in 2017. In the third quarter alone, Glenigan recorded approvals for 81,300 units on private housing building projects, up 17% on a year earlier.

Continuing high employment, low interest rates and a competitive mortgage market, plus the £10 billion injection into Help to Buy announced by the Chancellor in October have all helped new homes construction market trends.

"With good consumer demand, a healthy forward order book and a robust balance sheet…we have had a strong first half and we continue to deliver against our operational and financial objectives,” said David Thomas, chief executive of the country’s largest housebuilder, Barratt Developments. The firm’s completions rose by 2% to 7,324 in the half up to December and net private reservations are currently running up 6.5%. As of mid-February, the firm’s total forward sales were up 2% at £3,078 million.

Mark of confidence

In a mark of its confidence in 2018, Barratt dramatically increased its land purchases to £641 million, up from £328.2 million previously, as part of its plans to boost volumes. A new division in Cambridgeshire is among its plans to meet demand.

Bellway’s recent interims showed its forward order book at mid-March was up almost 8% in value terms on last year and its volumes slightly ahead at 5, 485 homes. Chairman John Watson said: “This strong sales position is likely to be maintained in the second half of the year, during which time the group expects to open some 52 new outlets.” The firm expects to increase building project volumes by 600 to over 10,000 homes for the full year for the first time in its history. It has also invested heavily in land, contracting to buy 6,726 plots, up from 6,287 previously.

Unveiling final results in February, Taylor Wimpey chief executive Peter Redfern said: “We have been encouraged by early trading patterns at the start to the year and despite some wider macroeconomic uncertainty, consumer confidence remains robust and market fundamentals are solid.” The group has a strong order book for 8,415 homes and in a mark of its confidence it bought 8,040 plots last year, up from 6,355 plots previously.