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
Housing market Supply Who is building the new homes? What is affecting the delivery of new homes? Development land Strategic land
Housing market
The shape of price growth
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
Mid cycle reference point in the residential market? Source: Savills 4.0 12.0 3.5 10.5 London to UK 3.0 2.5 2.0 1.5 Prime central London to UK house price London to UK House Price 9.0 7.5 6.0 4.5 Prime Central London to UK 1.0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 3.0
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) 120 100 80 60 40 20 0 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 1,000,000 800,000 600,000 400,000 200,000 0 Number of Transactions in UK
Price growth to spread out from London 5 Year house price inflation 2016-2020 Source: Savills forecasts for house price growth 5yrs 2016-2020. Published Nov 2015
1915 1920 1925 1930 1935 1940 1945 1950 80% 70% 60% 50% 40% 30% 20% 10% 0% Proportion of housing in England Rental demand is here to stay Source: Savills, DCLG 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Owner Occupied Social Rented Private Rented 2010 2015 2020
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 1991 2001 2011
Supply
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 300,000 250,000 200,000 150,000 100,000 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
1977 1978 1979 1981 1982 1983 1984 1986 1987 1988 1989 1991 1992 1993 1994 1996 1997 1998 1999 2001 2002 2003 2004 2006 2007 2008 2009 2011 2012 2013 2014 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 1,000,000 500,000 Annual Transactions (lhs) Annual Private Housebuilding Starts (rhs) 250,000 200,000 150,000 100,000 50,000 0 Annual private housebuilding starts
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 0-5,000 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
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
Who is building?
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) 200,000 175,000 150,000 125,000 100,000 75,000 50,000 25,000 0 Year to March
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 101-500 units 1-100 units 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
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 10,000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015
Constraints
Starter Homes Help to Buy Shared ownership Buy to Let Direct commissioning Planning
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
Development land market
Wide variation in land market strength Source: Savills Index (100=2007 peak) 140 120 100 80 60 40 20 0 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
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
Development land ownership Source: Savills Development Database Residential plots Housebuilder Other Developers Promoter and Investors Other Private Sector Public Registered Provider 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 Outline Plans Submitted Outline Plans Granted Reserved Matters Detailed Plans Submitted Reserved Matters Granted Detailed Plans Granted Application process Detailed permission
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 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 2010 2011 2012 2013 2014 2015
Margin discipline maintained Source: Thomson Reuters 30 Operating margin net of exceptional items, % 20 10 0-10 -20-30 -40-50 -60 Barratt Bovis Redrow Taylor Wimpey Persimmon Crest Nicholson Bellway Berkeley Average 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Strategic land market
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 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 Pre-Planning Outline Plans Submitted Outline Plans Granted Reserved Matters Detailed Plans Submitted Reserved Matters Granted Detailed Plans Granted Application process Detailed permission
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 300,000 250,000 200,000 150,000 100,000 50,000 0 Berkeley Crest Nicholson Bellway Bovis Redrow Barratt Taylor Wimpey 2010 2011 2012 2013 2014 2015
Outlook
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?
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 300,000 250,000 200,000 150,000 100,000 50,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Scenarios for development land values Source: Savills, NHBC, housebuilder annual reports Source: Savills SCENARIO 1 UK greenfield development land values (100= 2007 peak) 140 120 100 80 60 40 20 0 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
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
Savills 2016