The Government’s long-term aspirations are for a substantial increase in the supply of new housing, all of which will be built to the highest environmental standard.
But near term, private new housing will be shaped by harsh economic realities, rather than Government policy.
Against high property valuations, increasing affordability constraints and successive interest rate hikes during the previous two years, the general UK housing market had already begun to slow during 2007.
The number of mortgage advances fell to 73,000 in December, 38 per cent down on a year earlier and at its lowest monthly level for 13 years.
This slowing is already being felt in new housing volumes, with private housing starts falling to an estimated 185,000 dwellings last year as developers focused on completions and reducing work in progress. The sector is likely to experience a five per cent to 10 per cent decline in volumes over the next two years.
And there are still significant downside risks. Government planning policy has prompted a substantial shift over the last decade in the location and types of new housing being developed.
The emphasis on the use of brownfield sites for high density developments has seen apartments’ market share grow from 20 per cent to around half of all new homes built. This has been largely at the expense of detached family homes.
New build apartments are of particular appeal to buy-to-let investors. This area of the new housing market is exposed to any fall in new investment activity. In the third quarter of last year buy-to-let lending accounted for almost 13 per cent of all mortgage advances.
Increased caution from buy-to-let investors and lenders is likely to stem the flow of funds into the housing market, dampening turnover and prices.
Indeed, major house builders are already seeking to reduce their exposure, with Barratt scaling back the proportion of flats in its total product mix from 60 per cent to 50 per cent.
The challenge will be how readily the planning system will accommodate a return to more ‘traditional’ family homes.
Allan Wilen is head of business market intelligence at construction information service Emap Glenigan