Property News

New Home-Building Crisis as Planning Permission for Housing Projects Plummets

New Home-Building Crisis as Planning Permission for Housing Projects Plummets

The number of major housing projects given the go-ahead in England has fallen to its lowest level since records began in 2006, Government figures show.

A total of 2,456 projects have gained planning permission in the last three months. The total is 10% lower than the previous quarter, and down 20% year-on-year. The sharpest decline was recorded in the Yorkshire and the Humber region, where permissions fell 54% on the previous quarter.

The East Midlands (38%), London (25%) and the South West (20%) followed. The North East, East of England, West Midlands and Wales all saw approval increases.

Planning permissions are a key indicator of future supply levels. Housebuilders say the fall in permissions reflects the worsening economic situation and increasing levels of opposition to homebuilding. The House Builders Federation said that if the trend continued unaddressed, as many as 44,000 fewer homes a year could be delivered, and housing supply could halve to around 120,000 homes a year.

Stewart Baseley, chair of the Home Builders Federation, criticised ministers, says “over recent years the policy environment has become increasingly anti-development and anti-business and as a direct result we are seeing a sharp fall in the number of homes being built. The Government’s capitulation to the Nimby lobby on planning, its mishandling of water legislation, and, amidst a lack of mortgage availability, the lack of support for first-time buyers, could see housing supply drop markedly in the coming years.”

UK construction sector propped up by commercial work as housebuilding slumps

UK housebuilding fell at the second sharpest rate since 2009 last month, aside from the pandemic, according to a closely-watched survey. The latest latest S&P Global/CIPS construction purchasing managers’ index scored 50.8 in August, down from 51.7 in July.

Any score above 50 indicates that output has increased, while a score below 50 means it has fallen. Overall output among construction firms increased in August, driven by a sustained good performance for the commercial building and civil engineering sectors.

Resilient demand for commercial work and infrastructure projects are helping to keep the construction sector in expansion mode for now, but the survey’s forward-looking indicators worsened in August. But housebuilding remained the weakest-performing part of the construction sector with a score of just 40.7. Activity fell at the second-fastest rate since May 2020, and aside from the pandemic years, since spring 2009.

Residential builders are being hammered by rising interest rates and subdued market conditions, which has led to cutbacks to client demand and new build projects, the survey revealed. Furthermore, sales slumped across the construction industry with new orders falling at the sharpest rate in more than three years.

Tim Moore, economics director at S&P Global Market Intelligence, said “resilient demand for commercial work and infrastructure projects are helping to keep the construction sector in expansion mode for now, but the survey’s forward-looking indicators worsened in August. Total new orders decreased at the fastest pace for more than three years amid worries about the broader economic outlook and the impact of elevated borrowing costs.”

The cost-of-living crisis continued to squeeze household finances and buyers were reluctant to commit in the shadow of potentially another interest rate in September

Dr John Glen, chief economist at the Chartered Institute of Procurement & Supply (CIPS), added “the cost-of-living crisis continued to squeeze household finances and buyers were reluctant to commit in the shadow of potentially another interest rate in September.”

There were some glimmers of hope across the wider industry with suppliers’ delivery times shortening as stock availability improved, after a period of significant bottlenecks along the supply chain. Businesses also saw inflation ease since July as costs begun to stabilise across the sector.

But firms were feeling cautious about the outlook for activity in the year ahead and the level of optimism slipped to its lowest since January, the report revealed.

 

Gove’s Planning Reforms Won’t Work, Say Landlords

Landlords don’t think Michael Gove’s proposed planning reforms will help the government build 1mn new homes in England, according to research from Mortgages for Business (“MFB”).

In July, Michael Gove, the housing secretary, announced a review of permitted development rights in a bid to shake up planning rules, setting out plans to make it easier to convert large shops — such as takeaways and bookmakers — and offices into homes.

Gove also said red tape could be cut to enable barn conversions. The proposals to relax rules around the use of retail space are designed to provide greater density of housing in inner cities.

But a poll of 270 buy-to-let landlords conducted by MFB, a specialist buy-to-let broker, found that only 7% of landlords thought the reforms would work. When asked “Do you think Michael Gove’s proposed planning reforms will help the government build 1mn new homes in England by the end of the current parliament?”

59% of landlords said they thought the results were “unlikely to scratch the surface”.

While only 7% of landlords thought that Gove’s review was likely to achieve a great deal, 15% said the reforms could work “to a small degree, but not at scale”.

While almost three in every five landlords (59%) said the reforms “wouldn’t scratch the surface”, 19% thought the reforms could make the housing shortage worse, as they focus attention on building homes in cities — and allow politicians to ignore the need to scrap planning laws if we are to build enough homes to right-size our housing supply.

Gavin Richardson, the managing director of MFB said “Britain needs more homes to fulfil more dreams of home ownership and increase choice for renters. It’s great that these proposals mean that fewer empty shops or offices are left gathering dust while we have an urgent need for more homes. But on their own, a review of the rules around permitted development rights is not going to achieve very much. This is a small piece of a very large puzzle — on its own, there’s no way it is going to fix the housing crisis.”

In July, Michael Gove also promised the creation of city development corporations with the power to buy up brownfield land and sell it on to housing developers.

His big-city building drive will involve ministers seizing control of brownfield areas to push through new projects. Gove said "he was planning more than a dozen new development corporations that would be able to use compulsory purchase orders and grant planning permission to boost building in urban areas."

In the summer, Rishi Sunak promised that his government would deliver new homes without “concreting over the countryside” as he set out plans to focus housebuilding in areas that are already built up.

However, when asked if the country could tackle the housing crisis by building on brownfield sites alone, almost a quarter of landlords (24%) said they thought it was possible. Three times that many (76%) thought the housing crisis could not be solved by building on brownfield sites alone.

Gavin Richardson said “building in urban areas is an important element in providing more homes but there’s a question of capacity. There’s only scope for 2,000 homes to be built on brownfield sites in Oxford, for example, while in Cambridge it is 2,500. Furthermore, building in Birmingham, Manchester and Liverpool is not going to solve the housing shortage in the southeast. To do that, we are going to have to build on London’s green belt. Until we accept the need for a ‘green and brown belt’ around London, the South East will continue to be short of homes, which will, of course, support the business plans of thousands of landlords.”

High-end housebuilder Berkeley sees home reservations fall by a third

High-end housebuilder and developer Berkeley Group has flagged high inflation and interest rates weighing on the sector as it reported a slump of more than a third in home reservations. But the group stood by its profit expectations despite its gloomy outlook for the UK economy. Underlying private sales reservations – when a buyer reserves a property for a period of time – were down about 35% in the latest quarter compared to last year’s rate, it told investors.

The slump reflects the more volatile economic and political environment, Berkeley said.

Property prices have risen above its “business plan levels”, due to fewer new-build and second-hand homes to meet demand in the market, it added.

Berkeley Group continues to fine-tune its operations against a notoriously difficult backdrop for the sector. The company, which builds homes across London, Birmingham, and the South of England, also told investors it had not bought any land over the latest quarter and will only invest very selectively in new opportunities.

“The complexity and protracted nature of the current planning system and lack of clarity surrounding certain regulatory changes affecting our sector, at a time of considerable uncertainty for the UK economy with persistent high inflation and interest rates, continues to deter investment into brownfield regeneration and the wider housebuilding sector”, the group said.

Nevertheless, Berkeley stuck to its earnings guidance of at least £1.05 billion in pre-tax profits over the 2024 and 2025 financial years. It expects forward sales – an important indication of housing demand – of around £2 billion at the end of October, down from £2.14 billion at the end of April.

Richard Hunter, head of markets at Interactive Investor, said “Berkeley Group continues to fine-tune its operations against a notoriously difficult backdrop for the sector. In some ways, Berkeley is a different beast to many of its competitors, with a potential edge coming from its mix of an exposure to London and the South East, higher-end properties and the regeneration of brownfield sites in which it is well accomplished.”

Berkeley’s update come after rival housebuilder Barratt Developments said it was cutting the size of its workforce by hundreds due a slowdown in the housing market, “accelerated following the mini budget” under former prime minister Liz Truss. The business said the price of building a house had been increasing more rapidly than the price for which a house can be sold.

Barratt Developments reports fall in home sales

Total home completions fell by 3.9% year on year for Barratt Developments, which attributed he decline on the property market slowdown experienced from September last year.  In the 12 months to the end of June 2022, the property developer completed 17,206 homes, down from 17,098 on the previous year.

The firm’s adjusted profit before tax dropped by 16.2% from £1.05 billion to £884.3 million, in line with market expectations.

David Thomas, chief executive at Barratt Developments, believed that despite the figures, "the company had delivered a strong operational performance in a challenging operating environment. Customers continue to face cost-of-living and mortgage affordability challenges, and new developments are increasingly constrained by an ineffective planning system,” Thomas stated. “Today’s results reflect the hard work and dedication of our teams and the decisive actions we have taken as a business to respond to market conditions.”

However, Charlie Huggins, manager of the quality shares portfolio at Wealth Club, said "the lower home completions, combined with elevated build cost inflation, had taken their toll on Barratt Developments and its peers. New home buyers are clearly exercising greater caution, and the outlook for the coming months is highly uncertain,” he added. “Mortgage rates have increased significantly over the past year and have been highly volatile from one week to the next, making it very difficult for home buyers to plan their next move.”

Barratt expects market conditions to remain difficult over the coming months, targeting total home completions of 13,250 to 14,250 in the new financial year.

David Thomas also said “while we expect that the backdrop will continue to be difficult over the coming months, we are a resilient business with a strong balance sheet and an experienced management team. We remain committed to building the communities that our customers want to live in – delivering high-quality, sustainable homes at competitive prices to help address the country’s housing crisis and drive long term, sustainable growth for our business.”

John Choong, equity and markets analyst at InvestingReviews.co.uk, pointed out that "while the outlook remained volatile and uncertain, and mortgage affordability remained a challenge, there was room for optimism if inflation continued to fall along with gilt yields. After all, mortgage rates have been sliding down over the past month and could see further retrenchment if next week’s unemployment and wage data have a ‘weak’ showing. This month's wage and inflation data, and the next rate decision, will be key to the performance of the housing sector over the next year.”

Huggins described the outlook for Barratt as “murky at best right now. Cracks are starting to appear in the housing market, and while interest rates should be close to peaking, first-time buyers remain under enormous pressure. Until there is greater clarity on the future path of interest rates it seems unlikely market conditions will significantly improve.”