At the peaks and troughs of a business cycle the participants in an industry sector either see risk or opportunity. So how should not for-profit Registered Providers (RP’s) respond to the current conditions in the housing market?
Overheating to Stability
Remember this time last year, summer 2022. The property market was hotter than the proverbial tin roof! The impact of the first interest rate rise in February 2022 had not taken effect. Now economists say it takes 18 months for such increases to show fruits and on cue in August 2023 The Guardian announced:
“UK house prices fell 5.3% in August compared with the same month last year, the fastest annual drop in 14 years, according to Nationwide Building Society.”
However, look under the bonnet. Hometrack reported in August 2023:
“Affordability is improving relative to earnings as wages rise, up 7% over the last year. Housing affordability, on a house price to earnings basis, looks set to improve by 9-10% over 2023 as prices register modest falls and average earnings increase.
The UK house price to earnings ratio will be in line with the 20-year average at the end of 2023 at 6.3x. On a regional basis, affordability has improved the most in London. Here, the price to earnings ratio will get into single digits for the first time in 11 years as house price growth has been low since 2016.
We expect earnings to continue to rise faster than house prices again in 2024, improving the measure further, especially in southern England. This, together with mortgage rates in the 4-5% range, will support sales volumes closer to the long-run average”
Hometrack also reported annual price falls in London, South East and East of England of 1%, 0.9% and 1% respectively. Hardly a crash and barely a ‘correction’. However, we have not reached the peak impact moment for interest rates which will flow through until the end of 2024. For now, the market looks set to be subdued and stable as opposed to manic – a good thing I suppose!
What has changed radically is sentiment. Sentiment in the private housing building sector – the for-profit sector – particularly the volume housebuilders (VHB’s).
Faced with significant drops in sales rates many have adjusted their output of homes to defend their profit and cash positions. Inevitably their need for immediate consented land has significantly reduced leading to (quiet) redundancies in land teams, withdrawals from deals (including those contracted on) or land prices being chipped or deferred. Smaller regional and local developers are also being cautious on the land buying front being part of the same herd mentality. Overall developers are being less gung-ho about land purchases but it is still competitive. Agents and landowners are no longer sure whether a VHB will perform.
RP’s are now seen as the new Steady Eddie’s in the land market – well funded, enhanced grant regimes – in continuous need of development land to deliver for those with a housing need – it’s a big number. RP’s have also benefited from the demise of the Help to Buy scheme which has propped up the VHB’s since 2013. Now shared ownership has filled that gap and many RP’s are experiencing new levels of reservations – even in this market! Furthermore, in London there has been a significant increase in grant rates for ‘social rent’ product which is making schemes in the capital viable and more risk free from sales related exposure. Social rent has also had a grant boost from Homes England but the impact of that has been less impressive than in London.
Coupled with the above build costs are reported to have flatlined – having been through a period of rampant inflation. Planning consents should increase after the nutrient neutrality matter was settled.
So, from an RP’s point of view the moment has arrived to fulfil their missions – deliver a range of affordable homes for those on low to medium incomes. There is now less competition for land, build costs are stable, the grant regime allows for the viable delivery of more rented product (not susceptible to the market) and shared ownership demand is more robust than ever.
We’re ready to make hay with you.
V10 is perfectly placed to deliver package deals to the RP sector. We specialise in delivering off-market land coupled with a competent build contractor – both with fixed prices and completely derisked – the full service.
If you are in an RP with development ambitions in the current market then we want to be by your side. Call us.
Comments by: Karl Timberlake, Land & New Business Director at V10.