It’s been an interesting year for the UK house building sector – particularly with Brexit looming and industry commentators being unsure as to what the future really holds concerning house building, property prices and the impact of leaving the EU.
Before we look forward, let’s take a step back and see where the industry is right now – and how that needs to be factored into any predictions for 2019.
The housing shortage
The government recognises that between 240,000 and 350,000 new homes a year need to be built to address Britain’s chronic housing shortage, declared a House of Commons briefing paper published on the 12th December 2018.
In its latest statistics for 2018, the National House Building Council (NHBC) reported on the 1st November a record number of 43,578 new homes completed in the third quarter of the year.
Even if this record output is repeated in every quarter and bearing in mind that NHBC members build around 80% of all new homes, that makes a potential annual production by all builders of 217,890 new dwellings a year – a rate of supply still noticeably lagging behind the estimated required demand.
If supply continues to fall short of demand in this way, what are the implications and what do UK house builders need to know for 2019?
House price predictions
One of the fundamental consequences of the law of supply and demand, of course, is the effect on prices.
A market in which there is a notable shortage of supply compared to demand suggests a boom time for builders as prices increase.
In defiance of those laws of supply and demand, however, market experts predict very little if no increase in the average price of homes in 2019. Estate agents Rightmove, for example, suggest that the national average asking price for any home in the year ahead is likely to flatline at around 0%.
While increases in house prices are outstripping increases in wages, the overall levels of employment are high, and mortgage rates are attractively pitched, with high loan to value (LTV) offers available.
National average house prices, though, are subject to notable regional variations. Prices in the north of England, for example, are predicted by Rightmove to increase by between 2% and 4%, while those in the capital may fall by 2%, and in Greater London by 1%.
The savvy house builder, therefore, is going to look for those hotspots where property prices are in the ascendant.
There is a natural association between the potential for profitable house building projects and investment in the area’s supporting infrastructure.
According to a construction industry forecast by Experian – published in the summer of 2018 – the prospects for 2019 appear to be good. While it predicts continued moderate growth in house construction, this is likely to be boosted by even greater investment in major infrastructure projects. The HS2 rail development is expected to shift the whole balance of life and work in the north and south of the country, while Hinkley Point in the southwest of England – the first nuclear power station to be built since 1995 – will require a whole army of local employees to run it.
The Dover Western Docks Revival (DWDR) project, at an estimated total of £250 million, is the biggest investment ever to be made by the Port of Dover.
House building opportunities depend not only on the broad principles of supply and demand and the investment in infrastructures to support such development but also national and local government efforts to regenerate previously run-down areas to breathe new life into existing communities with the diversity of housing to meet different social needs.
There are many such regeneration projects the length and breadth of the country – the construction industry consultancy Potter Raper lists 100 of them – which set out both major and smaller urban renewal ambitions.
UK house builders may want to pay particular attention to those regeneration projects in particular hotspots and formulate specific plans not only for the potential volume of new builds but also the type of housing – and affordability – envisaged in those planning and development ambitions.
At the time of writing about opportunities for UK house builders in 2019, the elephant in the room continues to be the looming prospect of Brexit – and what impact is it likely to have on house prices.
The underlying absence of any consensus on that impact is underscored by a claimed worst-case scenario in which house prices fall by as much as 35% to one in which they are affected very little, if at all.
One of the latest commentaries – in the Guardian newspaper on the 30th December 2018 – points out that the current behaviour of the UK housing market has not yet been influenced in any way by Brexit. And even well into 2019 – after the planned exit on the 29th March – the newspaper predicts that average house prices are likely to increase by between 2% and 4%.
The optimistic forecast is echoed in a story published by the Daily Mail on the 27th December 2018 which suggests that the UK might even prove to be one of the best-performing global markets in the coming year – especially for those looking to invest on the home front (where the market is much less vulnerable to swings in currency exchange rates). Investment in new build housing clearly fits just that bill.
As we enter 2019, it seems that there is no one definite answer regarding house price predictions or indeed the wider UK economy. It’s never been more important for those gaining development finance to check the balance sheets of their providers to ensure they’ve got the security they need.
The good news is that at Ultimate Capital, we are here to fund you through thick and thin – providing Brexit-proof funding whatever the future brings.