The UK residential development market: Are we building enough homes and what is the pipeline of land to put them on?

Transcription

1 The UK residential development market: Are we building enough homes and what is the pipeline of land to put them on? Lucy Greenwood, Savills Residential Research 16th March 2016

2 Housing market Supply Who is building the new homes? What is affecting the delivery of new homes? Development land Strategic land

3 Housing market

4 The shape of price growth

5 5 Price and transaction volume recovery Source: Land Registry 150% 140% London 130% Price vs peak 120% South East 110% East 100% England & Wales South West West Midlands (region) East Midlands 90% Wales North West Yorks & Humber 80% North East 70% 60% 65% 70% 75% 80% 85% 90% 95% Transactions vs pre-crunch average

6 Mid cycle reference point in the residential market? Source: Savills London to UK Prime central London to UK house price London to UK House Price Prime Central London to UK

7 Mar-06 Sep-06 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 House prices and transactions Source: HMRC, Nationwide, Halifax, HM Land Registry (England and Wales) Index (100=2007 Peak) UK Transactions Nationwide Halifax Land Registry Sep-14 Mar-15 Sep-15 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000, , , , ,000 0 Number of Transactions in UK

8 Price growth to spread out from London 5 Year house price inflation Source: Savills forecasts for house price growth 5yrs Published Nov 2015

9 % 70% 60% 50% 40% 30% 20% 10% 0% Proportion of housing in England Rental demand is here to stay Source: Savills, DCLG Owner Occupied Social Rented Private Rented

10 Spread of PRS, areas with more than 15% of households in PRS Spread of PRS, areas with more than 15% of households in PRS Source: Census

11 Supply

12 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Ongoing shortfall of supply Source: Savills using DCLG data, HBF and TCPA 300, , , , ,000 50,000 0 Additional homes per annum in England Permissions Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 TCPA need projection (Holmans) Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Other starts New build starts

13 Transactions and private housing starts in England have been at a 10 to 1 ratio over the last 25 years Source: HMRC, DCLG 0 Annual transactions 2,500,000 2,000,000 1,500,000 1,000, ,000 Annual Transactions (lhs) Annual Private Housebuilding Starts (rhs) 250, , , ,000 50,000 0 Annual private housebuilding starts

14 More than just housebuilding conversions and change of use Source: DCLG Net additional dwellings 2014/15 35,000 30,000 25,000 20,000 15,000 10,000 5, ,000 South East London South West East of England North West West Midlands New build Net conversions Net change of use Net other gains and losses Demolitions Total net additional dwellings East Midlands Yorkshire and The Humber North East

15 Last years data on regional shortfalls Source: DCLG, HBF using Glenigan, TCPA Net additional dwellings Consents Housing need Shortfall (net additional vs need) Number of homes (year to Q1 2015) 60,000 50,000 40,000 30,000 20,000 10,000-52% 32% 34% London South East East of England South West 8% 17% West Midlands 33% Yorkshire 24% East Midlands North West 5% 16% North East 60% 50% 40% 30% 20% 10% 0% Shortfall

16 Who is building?

17 Private sector have been building the majority of homes Source: DCLG, NB: This uses adjusted quarterly completions data to 2006, applies the proportions of private, RSL and LA from quarterly data and assumes all LA and RSL completions are affordable Unsupported market sale Implied affordable delivered by private sector Local authorities Supported sales (Help to Buy and New Buy) Housing associations Number of new homes completed (England) 200, , , , ,000 75,000 50,000 25,000 0 Year to March

18 Larger housebuilders are building increasing proportions of new homes Source: NHBC New homes registered 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 500+ units units units

19 More than 50% of new homes from top 9 plc housebuilders Source: Housebuilder annual report, financial year 80,000 Barratt Developments PLC Persimmon PLC Taylor Wimpey PLC Bellway PLC Redrow PLC Bovis Homes Group PLC Berkeley Group Holdings PLC Galliford Try PLC Crest Nicholson Holdings PLC Number of homes completed 70,000 60,000 50,000 40,000 30,000 20,000 10,

20 Constraints

21 Starter Homes Help to Buy Shared ownership Buy to Let Direct commissioning Planning

22 At least 57% Housebuilder constraints of Local Planning Authorities lack a five year land supply Source: HBF 2015 Survey 65% 41% 32% 18% 15% Planning delays Labour availability Labour costs Land availability Land prices

23 Development land market

24 Wide variation in land market strength Source: Savills Index (100=2007 peak) London UK Greenfield UK Urban Land price versus '07/'08 peak -60% -40% -20% 0% 20% 40% Oxford Sevenoaks Cambridge Reading/Bracknell Below peak UK Above peak Milton Keynes Rugby Leeds Peterborough

25 Land market competition most notable in the most constrained markets Source: Savills, HM Land Registry Lincoln Strong markets with more land choice Luton Lagging markets with land choice Reading/Bracknell Milton Keynes Aberdeen Cambridge 20% Sevenoaks Bristol Central London Strong markets with little land choice Solihull 0% Land value vs '07/'08 peak -70% Nottingham -50% -30% -10% 10% 30% 50% Bradford Telford Leeds Wolverhampton -10% -20% 60% 50% 40% 30% 10% -30% House price vs '07/'08 peak Oxford City and East of City Brighton Crawley Haywards Heath Existing Wealth Belts

26 Development land ownership Source: Savills Development Database Residential plots Housebuilder Other Developers Promoter and Investors Other Private Sector Public Registered Provider 400, , , , , , ,000 50,000 0 Outline Plans Submitted Outline Plans Granted Reserved Matters Detailed Plans Submitted Reserved Matters Granted Detailed Plans Granted Application process Detailed permission

27 Listed housebuilders permissioned land banks growing at c.10% per annum Source: Housebuilder annual report, financial year Galliford Try Crest Nicholson Redrow Bovis Bellway Berkeley Barratt Taylor Wimpey Persimmon 400,000 Number of plots with full planning permission 350, , , , , ,000 50,

28 Margin discipline maintained Source: Thomson Reuters 30 Operating margin net of exceptional items, % Barratt Bovis Redrow Taylor Wimpey Persimmon Crest Nicholson Bellway Berkeley Average

29 Strategic land market

30 Strategic and development land ownership Source: Savills Development Database, at January 2016 Residential plots Housebuilder Other Developers Promoter and Investors Other Private Sector Public Registered Provider 700, , , , , , ,000 0 Pre-Planning Outline Plans Submitted Outline Plans Granted Reserved Matters Detailed Plans Submitted Reserved Matters Granted Detailed Plans Granted Application process Detailed permission

31 Top housebuilders are increasing their volume of strategic land and have been increasingly bringing their own land through the planning system Source: Housebuilder annual reports, financial year Number of plots without full planning permission 300, , , , ,000 50,000 0 Berkeley Crest Nicholson Bellway Bovis Redrow Barratt Taylor Wimpey

32 Outlook

33 Household income Housing need 2014 delivery Likely future delivery Households able to afford market housing Households in need of sub-market housing Affordable rent Social rent Much reduced delivery of submarket rent funded by grant and Section 106 Future sub-market rent funded through crosssubsidy Market new homes Help to Buy: Equity Loan Shared ownership Market new homes Help to Buy: Equity Loan Starter Homes Shared ownership Buy to Let?

34 PRS is here to stay Buy to Let v First Time Buyers Source: Savills, CLG, CML (English Housing Survey) 400,000 Estimated growth in PRS (EHS) Savills Estimate of Growth in PRS (UK) BTL lending for HP 350,000 Number of households 300, , , , ,000 50,

35 Scenarios for development land values Source: Savills, NHBC, housebuilder annual reports Source: Savills SCENARIO 1 UK greenfield development land values (100= 2007 peak) Plc housebuilder operating margin peaks at average 17.7% UK completions peak at 226,000 a year 17,842 NHBC registered house builders Lehman Brothers go bust UK completions fall to 137,000 homes per year Negative operating profit for plc housebuilders on average 9,859 NHBC registered house builders Plcs operating margin close to target, averaging 16.5% Supply of land constrained Other players pushed out of the market and fewer homes delivered Static land values SCENARIO 2 Increased supply of land in the highest demand areas Space for all players in the land market and more homes delivered

36 What next? Macro Interest rates lower for longer Brexit uncertainty Business investment Construction labour Household formation Housing & planning policy 1. Home ownership 2. Housing supply Starter homes Buy to let restrictions Direct commissioning on public land Local Plan led v Appeals Garden villages PDR Brownfield registers Density on transport

37 Savills 2016