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Housebuilders to spearhead wider upturn amid positive signs

The private housing sector is quickly shaping up to be the success story of 2013. The quarterly figures from the National House-Building Council show that private sector housing registrations in the UK rose 29 per cent in Q2 2013 compared with the same period the previous year to stand at 25,209.


House prices are also on the increase. Index figures from the Office for National Statistics point to a 3.3 per cent rise in prices in England, while in Wales prices were up 4.3 per cent, with Scotland dipping by a mere 0.9 per cent in the year to June.

Even more encouraging is the forecast growth in housing starts by the Construction Products Association, which predicts an average 9 per cent rise in housing starts year on year up to 2017.

London remains the major growth area, according to the NHBC figures, but all other English regions posted at least double-digit growth across all housing registrations in the quarter to June.

However, Wales, which has yet to see the implementation of the National Planning Policy Framework and where the Welsh equivalent of the Help to Buy shared equity scheme is not yet available, recorded a decline in registrations in the quarter.

Demand drives results

Sustained levels of high demand from domestic and foreign buyers as well as investors are pushing up profits, interest and margins.

Crest Nicholson reported half-year operating profits up 60 per cent, while Taylor Wimpey posted a 42.1 per cent rise in pre-tax profit for the first half of 2013.

“I don’t think it is a dead cat bounce - this is the first time I have looked at it and thought this could be the start of something”

Richard Tamayo, NHBC

Galliford Try’s housebuilding arm, Linden Homes, has said it expects its pre-tax profit to more than double between £72m and £75m in the year to June 2013.

Bellway reported its order book was up by more than half in the past year in its trading update for the year to July. Cala, Redrow and Persimmon are reporting similarly positive conditions.

So far so good for the major players, but it must be stressed that volumes are rising from a desperately low base.

Hesistant progress

Many big builders are keeping one foot on the brakes to protect their cash positions. If they are opening new outlets, they are multi-phasing developments so they can be started or stopped at any time. Expansion plans, though ambitious on paper, are being cautiously implemented.

Housebuilders registerations

Source: NHBC

NHBC commercial director Richard Tamayo says the market has “gone from critical to stable, but that’s different from running a triathlon”. He adds: “Things have been phenomenally poor - the cycle we’re in is a post-war low.”

But he is confident the growth is sustainable. “I don’t think it is a dead cat bounce - this is the first time I have looked at it and thought this could be the start of something,” he says.

“The risks are real, more due to the inability of the industry to flex supply, thus driving pricing upwards”

Mark Farmer, EC Harris

Mr Tamayo dismisses the view, common among clients and the media, that landbanking is to blame for the shortage of supply. “I’m speechless we’re still digging at this - they are selling at a rate the market will support and they are opening sites as swiftly for the most part as they can,” he says.

Much of this has been boosted by Help to Buy, launched in April - the first part of which affects the new-build market by guaranteeing mortgages. The scheme has seen 10,000 reservations, stoking fears that the market is being flooded with new credit.

Demand bubble?

Housing minister Mark Prisk told Construction News earlier this year that Help to Buy was not creating the conditions for another pricing bubble, though others are yet to be convinced.

EC Harris director of residential Mark Farmer says: “The risks are real, not only due to the ability of more purchasers to trade into or within the housing market, thus creating more unleashed demand, but more due to the inability of the industry to flex supply, thus driving pricing upwards.”

“There seems to remain a general inability among many local planning authorities to deal with applications in a timely and efficient manner”

Mark Farmer, EC Harris

Things look promising for the UK’s top 20 housebuilders coming into 2014 and beyond, as total turnover is up 16 per cent on their previous financial years and pre-tax profit almost doubled. But times are leaner outside the top 20, where the market is becoming more concentrated.

With barriers to development finance, higher land prices and no ability to spread risk across sites, hold-ups can make or break SME builders. However, new avenues of work are opening up.

Finance opportunities

Builders are welcoming opportunities arising from public sector clients and housing associations that are finding innovative ways of financing projects, such as bond issues, and are accepting lower section 106 requirements instead of letting unviable developments remain idle.

The new planning system is helping, and appeals are proving particularly successful - some builders report not having lost any in a year. But planning changes are having mixed results in different areas, with many smaller housebuilders unable to capitalise.

Mr Farmer says: “Those local authorities without their local plans in place are obvious targets for opportunistic applications, but localism is still meaning different things in different locations.

“There seems to remain a general inability among many local planning authorities to deal with applications in a timely and efficient manner due to resource and capability issues.”

Public vs private

According to the NHBC, public sector registrations were up 67 per cent in Q2 2013 compared with a year earlier. Longer term, prospects are weaker, with activity expected to cool late this year and early next.

This year has been described as a “make or break” for the private rented sector, but institutional backing has been largely absent outside the student market and a few flagship projects.

Investors are seeing potential, however - the government Build to Rent fund was increased fivefold due to oversubscription, and DCLG has set up a taskforce to look at ways of boosting the sector.

London landscape drives growth

Joint ventures are increasing within the industry. Barratt is teaming up with Morgan Stanley, London & Quadrant and British Land on sites across London.

Elsewhere Berkeley is in a £400m tie-up with the Wellcome Trust covering the South-east and Brookfield has a partnership with Concord Pacific Group for the 50-storey Principal Place residential tower.

Sean Ellis, regional director of St James - which started as a joint venture between Berkeley and Thames Water - says the JV has resulted in “a series of very successful joint ventures”, adding that new partnerships were “a natural progression” for the sector.

St James is “bigger and stronger” than it has been during the recession, he says, but he echoes the caution prevalent among developers. “Everybody keeps saying [the market’s improving] - they seem to have short memories. It wasn’t long ago it was a very difficult place to be.”

The shape of the residential market is also changing. Soaring tower proposals in London’s Docklands - where Chalegrove, Berkeley and Canary Wharf Group are vying for the title of the UK’s tallest residential building - reflect the new-found swagger of the industry.

With eye-catching projects in Elephant and Castle, Earl’s Court, Greenwich and Nine Elms, Knight Frank is forecasting a 10-year pipeline of 277,240 units in the capital.

Green shoots are also appearing outside London, with 55,000 new homes planned for Manchester over the next 15years (5,000 by 2016), as well as plans by Willmott Dixon and Bellway to progress with schemes in the North.

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