The Housing Market of Tomorrow: An Expert View Robert Grundy, Head of Housing, Savills Friday 11 th July 2014, Walton Hall, Warwickshire savills.com
What I will cover... Housing Market: Prices and Rents What will the next government be dealing with? What does the future hold for Housing Associations? Housing the New Excluded: Bridging the Gap in Housing
Housing Market: Prices and Rents What will the next government be dealing with? What does the future hold for Housing Associations? Housing the New Excluded: Bridging the Gap in Housing
Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Annual House Price Growth House Price Growth Nationwide +11.1% 15.0% 10.0% Land Registry Halifax Nationwide 5.0% Halifax +8.7% 0.0% -5.0% -10.0% Land Registry +6.7% -15.0% -20.0%
Since June 05 Past 12 months Regional price growth variation since June 2005 60% Since June 05 (LHS) Past year (RHS) 18% 50% 15% 40% 12% 30% 9% 20% 6% 10% 3% 0% 0% -10% -3% -20% -6% Source: HM Land Registry
Since June 05 Past 12 months Regional price growth variation & with past 12 mths 60% Since June 05 (LHS) Past year (RHS) 18% 50% 15% 40% 12% 30% 9% 20% 6% 10% 3% 0% 0% -10% -3% -20% -6% Source: HM Land Registry
Spread of the recovery April 2014 vs 2007/8 Peak 2014 April annual change
Mainstream Residential Five Year Forecasts 2014-2018
Regional Forecasts Source: Savills Research
Midlands: closer look - house price heat map Source: HM Land Registry
Since 07/08 peak Past 12 months Midlands price growth vs. Peak. Prices in Mids still below peak. Bubble? Wot bubble? 15% 10% Off peak (LHS) Past year (RHS) 9% 6% 5% 3% 0% 0% -5% -3% -10% -6% -15% -9% -20% -12% -25% -15% Source: HM Land Registry
Since 07/08 peak Past 12 months Midlands price growth vs. Peak. Picking up at different rates past year. 15% 10% Off peak (LHS) Past year (RHS) 9% 6% 5% 3% 0% 0% -5% -3% -10% -6% -15% -9% -20% -12% -25% -15% Source: HM Land Registry
Index, 2006/07 peak = 100 Residential Starts: Higher development activity across the country. London first, others following. 110.00 100.00 90.00 80.00 70.00 60.00 50.00 40.00 London South Midlan ds North Scotlan d 30.00 20.00 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 2006 2007 2008 2009 2010 2011 2012 2013 Source: DCLG & Scottish Govt residential starts, rolling four quarter total, all tenures.
Mar 07 Sep 07 Mar 08 Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13 Mar 14 % considering factor a major constraint Biggest constraints on dev t: Planning, Land Supply and Land Prices. Now joined by Labour and Materials 100 90 80 70 60 50 40 30 20 10 0 Planning delays Labour availability Materials availability Land availability Land prices Source: HBF
Effect of Help to Buy 1 on new build completions. Bigger impact in lower value markets of Mids & North 3500 3000 2500 2000 1500 1000 500 0 HTB Equity Loans % of build completions 35% 30% 25% 20% 15% 10% 5% 0% Source: DCLG (year to March 2014)
Help to Buy 1 in the West Midlands: follows New Build, Coventry, Telford & Cannock Chase
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Annual rental growth, % Rents: Rental Growth IPD 6 5 4 3 2 1 0-1 -2-3 -4 South Eastern South West, Midlands & Wales Northern England & Scotland Source: IPD Residential Investment Digest
Savills Rental Forecasts Source: Savills Research
Rental Values. Overview: East & West Midlands. North vs South. Significant variation. Source: Rightmove
Rental Values Close Up Birmingham 1 bed. Highest rents: New Build, City Centre regen, leafy suburbs. Source: Rightmove
Rental values Birmingham 2 bed Source: Rightmove
Rental values Birmingham 3 bed Source: Rightmove
Rental values: Leicester 2 bed Source: Rightmove
Rental values: Nottingham 2 bed Source: Rightmove
Housing Market: Prices and Rents What will the next government be dealing with? What does the future hold for Housing Associations? Housing the New Excluded: Bridging the Gap in Housing
New housing units p.a. Supply gap over and above private sector construction filled with market rent & affordable housing? 240,000 220,000 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Private Enterprise Local Authorities Housing Associations Demand Projections Savills Forecast? Source: Savills
Additional households/homes in England (000s per annum) Increasing supply but more land and development needed 250 Housing 200 150 Land plots with planning consent 100 New homes starts 50 0 Source: DCLG, Glenigan for HBF, CCHPR for TCPA
Housebuilders Continue traditional model Quite happy at 80 130k units pa Very consistent Profitability Property cycles Small builders? Scars left by credit crunch? Rebuild capacity?
Sales per outlet per annum Absorption rates: Housebuilders are selling faster into stronger markets and consuming stocks of land 50 45 2011 2012 2013 2014 (to date) 40 35 30 25 20 15 10 5 0 Crest Nicholson Redrow Barratt Taylor Wimpey Bovis CALA Galliford Try Miller Source: Housebuilder annual reports (or latest interim statement)
If you want subsidised housing... You need a subsidy.
Government plans to deliver 165,000 affordable homes between 2015 and 2018 Affordable Homes Programme - HCA Funding for new homes at 80% market rents. Up to 2015 allocated. 1.7bn 2015-18 To hopefully fund 165,000 new homes 75% of grant if on site pre March 2015 Affordable Homes Guarantee Programme - HCA Government debt guarantee to bring down the cost of borrowing for new homes. Approximately 220m has so far been allocated out of a 350m fund to be spent by 2017. But Starts down by 5,650 in 2014 Enthusiasm of HA players? Level of grant? Regulatory burden? Affordable Rents = more risky than Target Rents?
Proportion of dwelling stock in England (%) UK Housing Tenure More Market Renting? More intermediate tenures? Social housing stagnant Home ownership in decline In-betweeners Market renting expected to increase Policy flexibility Opportunity for social landlords and institutions Quality product 80% 70% 60% 50% 40% 30% 20% 10% Home ownership Social housing Opportunity? 0% 1918 1940 1950 1960 1970 1980 1990 2000 2010 2020 Source: Savills, CLG, Survey of English Housing
Market Rent and other uses can help absorption rates on large sites in a strong market Housing Absorption (average dwellings per annum during development period) Conventiona l Diversified routes to market Open Market Housing 150 150 Build to Rent 75 Custom Build 50 Affordable Housing 50 50 Elderly/Sheltered Housing 50 Student Housing 75 Total 200 450 Source: Savills
HA s Actively reviewing their future
NHF: Associations will house one in five by 2033 HA s will house one in every five people within 20 years Up from one in ten One market rent or sale for every two affordable homes built 80,000 affordable homes housing associations will build per year (120,000 overall) NHF sees turnover increase fivefold from 14 billion in 2012 to more than 70 billion by 2033
The Housing Association world is changing HA s moving into private renting and build for sale Internal cross subsidy Becoming providers across all tenures JV s/ investment partnerships Looking at assets (honest) Bogged down in low value areas Privately Owned HA s - For Profit RP s 2013: 25 registered; 10 in pipeline, some substantial Range of innovative forms of Affordable
HA s & Market Rented L&Q. Places for People Genesis Nottinghill Fizzy Living/ Thames Valley Catalyst Orbit
Build for sale Pro s: Margin Recycles cash Cross subsidy Cons Risk Market timing Motives & culture
Build for sale
Local Authorities - resurgent Back to the Future? 1950 s just what council housing was Market rental for skilled workers Some will return to market rent Re working run down council estates Powerful drivers of urban regeneration Mixed developments Many ways around the debt cap Cheap PWLB debt via General Fund Local Authority pension funds Partnerships/ JV s/ financing techniques
Housing Market: Prices and Rents What will the next government be dealing with? What does the future hold for Housing Associations? Housing the New Excluded: Bridging the Gap in Housing
Market Rent as a form of Affordable Housing? Market rent emerge as form of affordable housing? Quality product Well managed Ethical standards Continuing unmet demand from New Excluded Reappraisal of S106 and planning Big and little P politics No need to change statute or objectives
Q4 1979 Q2 1981 Q4 1982 Q2 1984 Q4 1985 Q2 1987 Q4 1988 Q2 1990 Q4 1991 Q2 1993 Q4 1994 Q2 1996 Q4 1997 Q2 1999 Q4 2000 Q2 2002 Q4 2003 Q2 2005 Q4 2006 Q2 2008 Q4 2009 Q2 2011 Q4 2012 Annual transactions/completions Mortgage availability & transactions collapsed post credit crunch 2,500,000 2,000,000 1,500,000 1,000,000 500,000 Mortgage Completions Transactions Shortfall in transactions 0 Source: HMRC, CML
Under 20k 20k to 30k 30k to 40k 40k to 50k 50k to 60k 60k to 70k 70k to 80k 80k to 90k 90k to 100k Transactions per annum Needs more affordable provision The profile of the shortfall varies by household income and region 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 London South of England Househol Source: Savills Research using HM Land Registry
Under 20k 20k to 30k 30k to 40k 40k to 50k 50k to 60k 60k to 70k 70k to 80k 80k to 90k 90k to 100k The profile of the shortfall in Midlands and Wales 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Household income of 20k 40k. Average say 25k. Household Income Source: Savills Research using HM Land Registry
Midlands: New Excluded Households Can they afford market rents?? Assumed household income averaging 25k Assumed 30% of income is an affordable rent level Averages out at about 625 per month (gross rent) Are market rents affordable to these lower paid income groups?? Time for HA s to re-think their role? Should HA s be meeting this need?? Are politicians & planners ready to re-think s 106 obligations??
New Excluded Households Birmingham 1 bed. Can afford market rents. Source: Rightmove
New Excluded Households Birmingham 2 bed. Can t afford black areas. Source: Rightmove
New Excluded Households Birmingham 3 bed. Can t afford black areas. Source: Rightmove
New Excluded Households Leicester 2 bed Source: Rightmove
New Excluded Households Nottingham 2 bed Source: Rightmove
Thank you Robert Grundy Head of Housing rgrundy@savills.com T: 020 7409 5995 M: 07967 555483