Jones Lang LaSalle says NewBuy has yet to deliver17th July 2012

The residential development industry doubts whether planning reform will lead to a significant increase in house building – and is increasingly concerned about how it will finance new homes. More radical government intervention will be needed to kickstart the industry, which is such a key part of the economy.

These are the main conclusions of Jones Lang LaSalle’s Land and Planning 2012 report, which surveyed around 100 land buyers at a variety of companies, from the largest national house builders and housing associations to niche developers.

The report also showed the great expectations that the industry had of the Government’s NewBuy Guarantee scheme – which should have allowed deposit-constrained buyers to access mortgages – which has as yet failed to deliver in significant numbers.

Michael Brough, Director of Residential Development at Jones Lang LaSalle, said: “The clear conclusion of the report is that the national industry is suffering from deterioration in funding conditions.

“Debt is becoming less available, and for smaller companies at least, this means that fewer sites will be developed out. Equity is becoming more prevalent, but it is highly selective and focused on high-value markets – it cannot make up for the retrenchment of conventional funding.”

“This suggests that the delivery of new homes may actually fall over 2012.”

“The industry did have high hopes for the NewBuy Guarantee scheme launched by the Government, as it believes that there are large numbers of potential buyers who cannot access mortgages. However, judging by recent news, their hopes have yet to be realised.”

“While it generally supports planning reform, the industry is doubtful whether the National Planning Policy Framework (NPPF) will lead to anything more than a slight increase in house building. The industry remains focused on improving margins and managing cashflow rather than increasing volumes.”

There were strong regional differences. Those in the South indicated that the market was strong, with some slight increases in land values, but they were most sceptical about planning reform. Those in the North were more optimistic about government policies, but also reported a weaker market.

The report confirms that the industry outside London is continuing to move towards family housing and away from flats. In the Midlands this is represented by a strong aversion to city centres and a preference for outer suburbs and rural areas; in the South, there is a move to market towns and areas with good transport links to London.

Viability remains an issue on many sites across the country, with some councils unwilling to negotiate on high affordable housing requirements agreed before the financial crisis. The up-shot of this is that certain parts of the Midlands are not being developed and are stagnating. Sales prices of houses in the poorer area of the West Midlands have fallen by 40%, yet in some cases Local Authorities are hanging on to high historic Section106 agreements, which render development unviable as the sums simply do not add up.

Overall, the report demonstrates that the Government may need to introduce more radical measures to kick start the industry and support the wider economy. Research commissioned by the Home Builders’ Federation concluded that every new home built creates 1.5 full-time jobs plus up to four times that number in the supply chain.

Brough said: “Extremely poor figures in the construction sector are a key reason why GDP has shrunk in recent quarters and the UK has fallen back into recession.”

“During the Great Depression of the 1930s, Britain’s booming house building industry produced well over 200,000 houses per year, insulating us from the worst effects of the global economic freeze.”

“Given recent economic data, the Government needs to reconsider its approach to housing and formulate radical plans to unleash a wave of building. This is not just an economic argument, is also a social one – all the statistics point to vast undersupply of housing, increasing overcrowding and rising levels of homelessness.”

“Furthermore until the high street banks start providing mortgage finance at a realistic LTV to the general public, the housing market is unlikely to recover in the short-medium term. National house builders report that while there is significant interest and demand from the general public in their products, without the ability to obtain a mortgage that interest cannot be converted. It is estimated that the average first time buyer will need to save for between 12-15 years to provide a 30% deposit that the high street banks currently require. Interestingly, those first time buyers are predominantly renting properties and paying a rent that is on average 25-30% higher per annum than an equivalent mortgage.

“While we don’t want to see the return of the 100 per cent LTV mortgage, a return to 90 per cent based upon todays realistic values would certainly fuel the housing market nationwide.”