New home supply challenges to persist throughout 2022

January 6, 2022 / Isla MacFarlane
New home supply challenges to persist throughout 2022

Nearly two years into a pandemic that brought life to a halt, the world still feels more new than normal. While the nation held still, the property market seemed unstoppable, with low interest rates, stamp duty holiday and a work from home revolution sending transactions soaring. Will 2022 be more of the same?

Over 500 housebuilders, large and small, were surveyed across England, Scotland and Wales for the WhatHouse? New Homes Predictions Report 2022. Its findings paint a sunny, if slightly unclear picture.

Following a vintage year for the property market, overall housebuilders appear to be confident about 2022. Overall, 71% of housebuilders reported feeling ‘cautiously optimistic’ about the year ahead. 15% felt confident and just 14% were concerned.

Kelly Sharman, Sales and Marketing Director, Hayfield Homes, said: “All the signs point towards the current strong new homes market continuing to grow into 2022. Good housing stock in prime locations remains very limited. Furthermore, agents are reporting a lack of new instructions coming to the market, which inevitably increases demand.

Adrian Bohr, group developments director, Places for People, added: “We have seen an underlying desire for home ownership across the whole of England all the way up to Scotland. The market conditions have been exceptional with demand at a high-level coming out of the pandemic.”

Housebuilders were upbeat on house prices too. 60% forecast that new build house prices would swap price peaks for continued steady growth.

Mark Quinn, CEO, Quinn Homes, said: “We expect to see low single digit increases in house prices (3-4%) and one of the key themes of the last two years, a flight to quality, becoming stronger still. Houses with the potential for home offices will be sought-after, alongside apartments that have access to green infrastructure. There is significant competition for good quality stock, which will continue, especially as buyers are becoming increasingly discerning. The result is that homes not possessing what the home buyers want are seeing price reductions and limited interest.

“The very best homes will continue to sell well and attract serious interest from buyers including investors, who are still very much active in the marketplace and see strong opportunities as rental values increase (10%), an often under-recorded and under-appreciated metric. This rental increase will increasingly encourage first time buyers and younger people to buy, supported by government programmes, as we have seen throughout 2021.”

A similar number of housebuilders were optimistic about transaction levels, with 62% expecting a return to pre-pandemic levels. Jamie Barrington, sales operations manager, Beal Homes, said: “I expect transaction levels to rise compared to pre-pandemic times, driven in part by customers moving up the property ladder into larger executive properties providing space for home working.

“I also believe the lower end of the market will remain strong as first-time buyers take advantage of Help to Buy, before it is due to be withdrawn in March 2023, and the newly introduced Deposit Unlock scheme. The housing market should be further supported by what are expected to be continuing high levels of job vacancies, feeding through to wage growth.”

Sharon Spinelli, sales and marketing director, Robertson homes, added: “In this last couple of years ‘home’ had to become so much more and we have seen demand for high quality design with large circulation space grow exponentially. We have a strong pipeline and transaction levels are predicted to grow as a result of new developments starting and increased completions.”

When asked what challenges they expect to be felt most acutely through 2022, 13% of housebuilders said changes to buyer behaviour, 27% said supply chain problems and 60% said the anticipated interest rate rise. However, those asked agreed that continued economic recovery and a high percentage of fixed rate mortgages will help secure the new build housing market’s strong position.

Dave Bexon, non exec director, Whathouse.com, said: “We are not facing a storm but there are some clouds that could gather. Rising inflation and interest rates, employment uncertainty, fuel price highs and record house price/earnings ratio levels mean that consumers are starting to feel the pinch. Whenever consumers begin the feel the pinch, activity tends to reduce. But if the recovery holds up, and we continue to see a high percentage of mortgages at fixed rates, then activity is likely to remain pretty solid.”

Supply chain shortages were a regrettable hallmark of 2021. The problem was reported by volume and SME house builders alike, with almost three quarters of both groups reporting supply shortages of key building materials. Looking ahead, more than a quarter said supply chain delays would have the greatest impact on the housebuilding sector in 2022.

Kelly Sharman, sales and marketing director, Hayfield Homes, said: “Given the supply chain and labour shortages that are creating delays to construction programmes, our biggest challenge in 2022 will be ensuring consistent high-quality delivery of new homes within a timely manner. These ongoing issues – which have been significantly affected by the pandemic and Brexit – are having an impact on output and ultimately the number of new homes being delivered to customers.”

73% of house builders asked to predict the impact of supply chain problems agreed that while material shortages in the UK are softening, bricks and timber could both face issues going into 2022. Those asked felt that the house building industry has a lack of surety over inflation and product prices for materials and were concerned that product availability could be affected by border arrangements from 2022, including the UK’s new CA mark.

67% of housebuilders asked expressed concern that an increase to the supply of new housing stock would be hampered by planning constraints, scarcity of bricklayers and plasters, and logistical issues arising from Brexit.

Quinn concluded: “For 2022, we see the continued constriction in the supply of new homes, as a result of the combination of price increases and shortages of materials and the delays in the planning system that have hampered construction significantly in recent years. We see these factors as underpinning the housing market in 2022.”

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