Do you have the data to support your housing delivery strategy? - Insights - Hometrack
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Insights Do you have the data to support your housing delivery strategy?
Introduction Over the five years to 2021 the public sector intends to develop more than 280,000 new units across all tenures, at an estimated cost of £55bn. Although government subsidy and debt will play a part, over half (£31bn) of this investment will be funded directly through sales revenue. The Regulator of Social Housing has identified that the development of homes for sale is a key area of risk which exposes registered providers. This puts the onus on scrutiny panels and boards to truly understand the risk and reward behind their development decisions, and ensure appropriate coping mechanisms are in place to mitigate against risks associated with exposure to the wider market or changes in government policy. This report showcases 4 key Hometrack metrics to reflect on current market conditions and examine housing trends in 2018.
Analysis
Turnover
Each year around 10% of all property transactions are new build, however the distribution of development
is not uniform across Great Britain. In recent years the introduction of Help to Buy, growth in LCHO, and the
emergence of BTR has meant some local housing markets are more driven by new build than others. This is
important as registered providers look to accelerate, and diversify, their development ambitions to help meet
the government’s target of 300,000 homes per year.
Chart 1 New build concentration by region
14%
14.0%
13.9%
12%
12.1%
11.9%
11.5%
11.5%
% New build concentration
11.1%
10%
10.3%
10.2%
10.2%
9.0%
8%
7.1%
6%
4%
2%
0%
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Source: Hometrack Dashboard, December 2017
Chart 1 shows the new build concentration by region and for Great Britain as a whole. New build
concentration is defined as the number of private housing starts in the last 12 months, expressed as a
percentage of total transactions for the same period.
On a regional level the highest new build concentration is in the North East (14%) followed by London (13.9%)
and the East Midlands (12.1%). The above average level in the North East reflects a slow recovery in the
general level of housing transactions in the region, compared to the rest of the country. Help to Buy is being
used on a notable proportion of housing completions in the North East to support supply.
London has registered a major increase in housing supply in the last 5 years and, while the general level of
housing turnover has also grown, so has new supply. However, developers are starting to migrate out of
London as affordability constraints bite and turnover starts to decelerate.Chart 2 12 month price change relative to 5 year compound annual growth rate
5 year (CAGR) 12 month price change
10%
12 month price change
8%
6%
4%
2%
0%
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Source: Hometrack house price indices, December 2017
The compound annual growth rate (CAGR) is the
mean annual growth rate of an investment over a
specified period of time longer than one year.
The North, along with Scotland and Wales, have
outperformed their long run average with the North Scrutiny panels will not be
East registering a 2.4% increase on the 5 year CAGR able to rely on the market
of 1.9%. These markets are less mature in their
recovery following the 2007–2009 financial crisis,
outperforming their
and therefore still have headroom for growth as they modelling assumptions for
rise off a low base.
marginal schemes
In London and the South East, house prices have
performed strongly over the past five years but have
started to see low single digit growth with small
declines in prime London. This has implications on
development cashflows as scrutiny panels will not
be able to rely on the market outperforming their
modelling assumptions for marginal schemes.Chart 3 Price to earnings ratio for a 2-bed resale property
Price to earnings ratio
Below 4
4–5
5–6
6–7
7–8
Above 8
Source: Hometrack Dashboard, December 2017
Based on gross weekly single person earnings
The London average price to earnings ratio sits at
14x, rising to 18x for the inner London boroughs.
There are opportunies for This makes for a challenging environment for first
other tenures such as private time buyers to enter the market. However, it does
highlight the opportunity for other tenures such
rent, discount market rent or as private rent, discount market rent or low cost
low cost home ownership to home ownership to pick up the slack in terms of
pick up the slack in terms of routes to delivering the extra homes demanded.
routes to delivering the extra Once again, the Midlands and the North
present the strongest all-round opportunities
homes demanded for development in the medium term, with an
average price to earnings ratio of below 5x.Chart 4 Gross yield
Postcode Area Gross yield
L20 Bootle 10.4%
DL4 Shildon 10.3%
L4 Everton 10.0%
SR1 Sunderland 9.8%
FY1 Blackpool 9.5%
DL17 Sedgefield 9.3%
DN31 Grimsby 9.3%
M8 Manchester 9.2%
L6 Liverpool 9.1%
L9 Liverpool 8.5%
CH41 Birkenhead 8.4%
CV1 Coventry 8.4%
HU3 Hull 8.2%
HD1 Kirklees 8.1%
DN1 Doncaster 8.1%
Source: Hometrack Dashboard, December 2017
Chart 4 highlights the top 15 performing
postcodes in terms of gross yield (the annual
return on investment) across Great Britain. When looking inward, yield
12 of the top 15 markets are based in the North can be a useful tool in
West or Yorkshire. We would expect this gap to
narrow as prices continue to grow over the coming
assessing existing assets
years. On average London and the South return a and benchmarking their
yield of circa 4%, but there are still some enclaves
outperforming their counterparts, namely in
performance when identifying
Barking and Dagenham (5.7%). regeneration opportunities
When looking inward, yield can be a useful tool within registered providers’
in assessing existing assets and benchmarking own asset base
their performance when identifying regeneration
opportunities within registered providers’ own
asset base.In a rapidly evolving housing market you need access to accurate
and up to date intelligence, so you can base critical business
decisions on fact.
The UK’s leading housebuilders and housing associations rely on
Hometrack’s accurate, independent market intelligence to inform
their housing strategy. Whether it’s understanding the competition
and local market, or optimising price and reducing downside risk,
Hometrack helps businesses make critical decisions by transforming
residential property data into actionable insight.
Hometrack has over 15 years of experience working with over
130 Housing Associations and Local Authorities. Our Public
Sector team have knowledge of directly working within the sector,
providing them with unique insight and understanding of the
challenges registered providers face.
Hometrack’s insights are regularly used to:
• Aid research and strategic planning
• Support development and sales teams with impartial market intelligence
• Unlock the latent value of assets
Contact Hometrack’s Residential Real Estate team
Ross Allan – rallan@hometrack.com
Rob Owens – rowens@hometrack.com
020 3744 0410 | hometrack.comYou can also read
