A new report from Savills, which takes stock of the impact Brexit will have on residential development, reiterates that a fall in migration will not solve the housing crisis. The report, authored by Susan Emmet, Director of Residential Research for Savills, opens with a hard truth: the prospect of leaving the EU and projected falls in net migration has not changed the fact that there is a woeful undersupply of housing in UK.
LONG-TERM DEMAND
“The housing crisis is a long-term structural issue resulting from a range of factors, including but not limited to population growth,” the report said. “Other contributing factors to the housing shortfall would still remain and may be exacerbated. In the year to March 2015, we delivered 171,000 net additional homes. This is a major improvement on the previous year’s figure of 137,000. Residential developers had begun to build momentum. However, there is still a significant shortfall in housing need.”
SHORT TERM SENTIMENT
The report said that it is still too soon to fully analyse the impact of the vote on the sale of new homes. “Early indications reveal a mixed picture,” it said. “Some housebuilders have reported strong sales since the referendum. Savills agents report that the number of sales in the three weeks immediately following the referendum is marginally down compared with the same period last year. But the fact that there were few launches in the aftermath of the referendum partly explains the decline.
“Taking the longer view, the number of Savills new build sales in the year to date is 17% higher than the previous year. Outside London, pricing has held firm so far with little evidence of developers offering discounts. Looking ahead, a slowdown in the property market as a result of a more sluggish economy could potentially slow the rate of new homes sales. Independent of Brexit, other factors were already expected to impact on the new homes sales market this year.”
In central London, Savills reports that a fall in sterling has stimulated some new international interest in the new build market. “In previous cycles, weak sterling and resulting international interest acted as a catalyst for market recovery,” it said. “This time round, overseas buyers will have to weigh up currency incentives against a less hospitable tax environment. However, London still remains competitive and attractive on the global stage, which will continue to act in its favour.”
Slower sales of new build were already resulting in greater reliance on take up by PRS operators, the report observed. There is a wave of money looking to enter the UK’s private rented sector and the shift in the market represents opportunities. There is also political support. James Murray, Deputy Mayor for Housing, has identified Build to Rent as key to addressing housing shortfall and has been meeting investors following the referendum.
LAND SALES
A survey of Savills land agents across the country shows that sentiment shifted from positive to neutral following the vote. Agents report that uncertainty is prompting housebuilders and promoters to slow their land buying activities. Many house builders have a strong pipeline of land at present and can afford to wait for a few months to establish where the market is heading.
“We have seen some early signs of a more risk averse approach to purchases with land buyers increasing their buying profit margins and hurdle rates,” the report said. “We are still receiving a range of offers for development sites. Some developers have a more cautious approach to terms and are increasingly considering deferred payments.”
Ahead of the referendum, activity in the land market was steady and values for urban land were growing at a slightly faster rate than greenfield land. Savills land index showed that urban development land values increased by 1.3% in the second quarter, up from 1.0% in the first quarter, bringing annual growth to 4.1%. Greenfield values saw little change with values rising by 0.7% over the second quarter compared with 1.0% in the previous quarter. Annual growth stands at 2.2%.
The report concluded that housebuilding will play a significant part in the new government’s wider economic strategy. To maintain housing delivery, the industry needs: the continuation of schemes such as Help to Buy; help with development finance; more planning consent in areas of high housing demand; and policy flexibility surrounding affordable housing tenure.
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