An exclusive survey of house building figures by Construction News has revealed a drop in new starts is likely in 2003, which could mean a major slump for subcontractors and suppliers.
Steve Menary looks at what the figures show
HOUSE building is set for a sharp slowdown, according to new figures obtained by Construction News.
An exclusive survey for this paper by industry research body Emap Glenigan has revealed that the number of planning applications made by Britain's leading house builders last year has fallen away dramatically from the current rate of new starts. It shows that house builders submitted 20 per cent fewer applications to build new homes in 2002 than in 2001.
According to the National House Building Council, actual starts rose 11 per cent from a post-World War II low to 171,062 in 2002. But our survey shows that detailed submissions crashed 21 per cent in the same period to just 91,236.
Andrew Whitaker, national planning adviser at the House Builders Federation (HBF), claimed this was due to Government policy and expects starts to fall in 2003.
He said: 'The reason that new housing starts are at such a historic low is because greenfield starts are plummeting and that is down to the Government's PPG3 planning guideline.
'Local authorities now have a moratorium on the release of greenfield land, which can only be released when brownfield land is used up. For the building industry and people wanting to buy new homes, it is very worrying.'
Starts rose in 10 out of 11 regions last year but detailed applications fell in 10 out of 11 regions.
The federation has lobbied the Government for the release of greenfield land but PPG3 is not the only problem.
An increase in the requirements on house builders prior to submitting applications - the cost of which went up £2,000 to £11,000 in April 2002 - has also had an effect.
Mr Whitaker added: 'There are a lot more things that you have to do before you put in an application. Things such as an environmental impact assessment, which can cost £10,000.'
The federation also insists that recent applications include more units per plot, which Glenigan's figures bear out: the 1,899 detailed applications submitted in 2002 averaged 48 per plot, three more than in 2001.
But a closer analysis suggested other issues could be behind the fall in applications.
The survey included 14 public limited companies and only one raised its level of applications last year, whereas half the privately owned firms in the survey managed to step up submissions.
According to Glenigan, the plcs now control around three-quarters of UK plots with planning permission.
For plc house builders, an important statistic in the results presented to their shareholders every six months is return on capital (ROC), a measure of how companies use their cash. If a house builder has bought land in a region where prices start to fall and sales dry up, the firm's cash flow will be hit. As a result, ROC will drop and this may have a negative impact on a plc's share price.
Forecasters differ over the direction of the housing market this year but most agree that London is overheating.
'If there is any market that could witness a very sharp reversal of fortune, then we think it is London, ' said Mark Hake, a house building analyst with investment bank Merrill Lynch. 'We would not rule out the possibility of London seeing a fall of up to 10 per cent in real house prices.'
The City is marking down firms that sell a lot of homes in London.
Berkeley was the only plc house builder to raise its applications in 2002 with one-third made in the capital. It puts the increase in applications down to building more homes for key workers, such as teachers and nurses, which is what London mayor Ken Livingstone and the Government want.
Yet the City is marking down firms that are overexposed to an overheating market and Merrill Lynch, for one, does not favour Berkeley.
Berkeley chairman Roger Lewis admitted the aims of the public sector do not always match with those of the plc house builders. He said: 'If a local authority wants 50 per cent affordable housing on a site and it does not stack up financially, there can be a divergence.'
The survey shows that applications fell a quarter in London last year but the biggest drop came in the southwest - another region in danger of overheating.
The Nationwide Building Society is among the more bullish forecasters but group economist Alex Bannister admitted: 'At a localised level it is highly likely that we will see price falls around the UK, even if these are not sustained for a prolonged period.'
Plc house builders routinely quote land banks in results presentations that are far in excess of the applications shown in Glenigan's figures.
Bellway, for example, has a landbank of 17,400 'consented plots' yet only submitted detailed applications for 3,051 units in 2002, enough to last six months at its current build rate.
House builders claim this discrepancy is due to many plots being approved in principle but waiting on legal agreements such as planning gain, which can be a lengthy process.
They also point out that many plots in landbanks are only outline approvals. Yet firms have three years to apply for detailed approval on sites with outline consent.
Crucially, the figures reveal there has not been a gradual slowdown in detailed applications as red tape strangles the house builders, but a sudden slump.
The drop between 2000 and 2001 was just 2.6 per cent before a 21 per cent crash in 2002. So does this suggest house builders delaying their applications for detailed approvals in areas in danger of overheating?
It is an awkward question, but Crest Nicholson chief executive John Callcutt admitted: 'There is an element of conservation among volume house builders but it's not on the scale that people think.
'There are often thousands of reasons why land in a land bank cannot be developed. If they are hoarding plots, it is because they have no confidence in the system and the supply of new land.'
House builders, unlike the Government, are businesses and most claim they need land banks of around three years to plan adequately.
Many firms insist that they start immediately on any scheme given planning approval but this is not strictly true.
McCarthy & Stone, a retirement home specialist and plc, stopped work on new schemes after the September 11 terrorist attack and fears about the state of the world economy.
Chief executive Keith Lovelock explained: 'We deferred starting on a number of new sites until we were happy the market would pick up, which took a couple of months.'
Construction News' survey suggests an element of hoarding so, when the Government - as it has promised - loosens the red tape weighing down house builders, there should be a sudden surge in detailed applications.
If not, that will only bear out the sceptics' theories, who insist house builders restrict supply to keep prices buoyant.
Until then, homebuyers and the building industry look likely to pay the price as new housing work begins to tail off yet again.