Housing Market and Policy Backdrop - Lucian Cook Emily Williams
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Housing Market and Policy Backdrop
Lucian Cook
Emily Williams
1
Annual House Price Growth at +12.1% to the end of April…..
……meaning prices have risen by 23.7% since June 2020 (Nationwide)
110,990 housing transactions in March….
….continuing at +12% above the pre pandemic norm for the month (HMRC)
2nd hand stock levels a third lower in March 2022 than March 2019 (20CI)
And continued (if less generous support) from Help to Buy
2
A strong land market despite cost pressures
EPCs granted for new dwellings (England)
Band A Band B
+9.3% Band C Band D
Band E, F & G As a % of all housing tranactions
growth in
80,000 30%
greenfield land
values
(above 2008 peak in Despite a 70,000
25%
SE England)
+19.5% 60,000
cost increase 50,000
20%
in materials
(and +7.0% 40,000 15%
underlying rate of
+7.2% inflation) 30,000
10%
growth in 20,000
brownfield land 5%
values 10,000
0 0%
Year to March 2022
Source: DLUHC, HMRC, Savills 3
successive
interest votes for a
rate rises 0.50%
increase
votes for a
0.25% increase further rate
at the last MPC rises pencilled
in for this year
4
What that does to affordability?
The average household buying the average house
Interest payments Capital repayments Mortgage payments (stress tested)
40%
35%
30%
25%
20%
15%
10%
5%
0%
Q4 2007
Q4 2015
Q4 2002
Q4 2003
Q4 2004
Q4 2005
Q4 2006
Q4 2008
Q4 2009
Q4 2010
Q4 2011
Q4 2012
Q4 2013
Q4 2014
Q4 2016
Q4 2017
Q4 2018
Q4 2019
Q4 2020
Q4 2021
Q4 2022
Source: Savills using numerous sources 5
From a housing market perspective
Supply-demand but that will be
imbalance will tempered by and a squeeze
drive further pressure on on affordability
short-term price household at point of
growth incomes mortgage
…dependent on New build will
which will the extent to be better placed
curtail capacity which mortgage to meet lenders’
for price growth regulation is future EPC
from 2023.. relaxed demands
6
The role of mortgage regulation
SVR has
become
disconnected
from market
rates
Loan Income Responsible Mandatory
Don’t expect
Cap Lending Rules stress
an opening tests of
the mortgage
No more than 15% of Borrower affordability Affordability stress
credit
lending at over 4.5 x tested having regard to tested at 3% over SVR
Loan to Income market-expectations floodgates
unless the borrower has
over 5 years or +1.00% fixed for 5+ years More
borrowers
have locked
into 5-year
money
7
Price growth, pressure on household incomes & higher interest rates will have
the greatest impact on first time buyers
Challenges exacerbated by Help to Buy coming to an end (despite initiatives
such as First Homes and schemes such as Deposit unlock)
Some of that slack will be taken up by expanded shared ownership (provided
there remains an effective route to delivery)
But the ability to sell into an expanding and maturing Build to Rent market will
take on heightened importance for housebuilders
8
Help to Buy and what fills the gap
Help to Buy activity v average for month Low Cost Home Ownership
2017 - 2019 Help to Buy
Old Scheme New Scheme (FTBs & Value Caps) Deposit Unlock
200% First Homes
9,835
Shared Ownership (grant funded)
180%
185%
183%
Shared Ownership (Section 106)
160% 156% 8,788
140%
140%
7,422
135%
133%
129%
120%
121%
18,000
109%
100%
107%
105%
60%
92%
80%
5,124
57%
53,154
70%
60%
64%
61%
60%
40%
42%
41%
39%
35%
24,451
20%
21%
0%
Jul-20
Jul-21
Feb-20
Feb-21
Oct-20
Apr-20
Apr-21
Nov-20
Dec-20
May-20
Aug-20
Sep-20
May-21
Aug-21
Sep-21
Jun-20
Jan-20
Mar-20
Jan-21
Mar-21
Jun-21
3yrs to 2021 3yrs to 2026
(actual) (forecast)
Source: DLUHC, Savills 9
Build to Rent
Build to Rent
Average Annual Rolling Starts
size of 20,000
schemes 18,000
16,000
243 units
under 14,000
construction
+66% 12,000
Q on Q 10,000
140 units growth in
operational completed 8,000
single family
6,000
units
308 units 4,000
in planning 2,000
0
Q1 2015
Q1 2016
Q 2 2016
Q1 2017
Q1 2018
Q1 2019
Q1 2020
Q1 2021
Q1 2022
Q 2 2015
Q 2 2017
Q 2 2018
Q 2 2019
Q 2 2020
Q3 2020
Q 2 2021
Q3 2015
Q4 2015
Q3 2016
Q4 2016
Q3 2017
Q4 2017
Q3 2018
Q4 2018
Q3 2019
Q4 2019
Q4 2020
Q3 2021
Q4 2021
London Regions
Source: Savills Q1 2022 10A “challenging” policy environment
Increasing
Planning environmental
Levelling up & uncertainty & standards &
impact on local plan development
housing targets adoption constraints
section
Design codes,
build standards
and energy
efficiency
106
Delivery of
infrastructure &
affordable
housing
£ Financial
responsibility for
cladding
remediation
11The lost art of letter writing……
12A new broom sweeps through…..
13Levelling up focus… Source: Glenigan, DLUHC 14
… leading to planning uncertainty
5-year land supply Local Plan Status
12 Local Plans
stalled in the
last 9 months
9LPAs cited lack of
national policy
clarity as reason to
pause
Source: Savills Research, DLUPHC 15First Homes: who will they work for?
Housebuilders Housing Residents
Weakened cashflow associations Higher deposit and income
Lower GDV Greater competition for S106 requirements
Greater difficulty competing More demand for land-led Lower monthly housing costs?
with logistics delivery Less choice overall
16Nutrient neutrality
74 LPAs
currently affected across the country
50% - 70% homes planned in these areas
could be at risk based on analysis in the south
17Build cost Future
annual Homes
inflation Standard
19.5% from 2025
+ £4,000 10% BNG
uplift from
per unit
2023
30%
beyond + £3,000-
£2,000 per
existing Part £5,000 per unit
L regulations unit
from 2022
18Developer tax: two taxes…
Paid when All
Building seeking residential Raising
Safety Levy planning
permission
development
activity
£3bn
For
Residential companies For UK res
Property Raising
with dev activities
Developer
Tax (RPDT) >£25m including £3bn
BTR
profit
Source: Savills Research 19Lack of planning policy clarity
Reduced Govt support for new build sales
Increased requirements for developers
Slower house price growth over the next 5 years
Leaving a less certain environment for housing future delivery
20Months in Office
0
10
20
30
40
50
60
70
Source: DHLUC
Pickles
All change?
Clark
Javid
Brokenshire
Jenrick
Gove
21Thank you
© Savills 2022
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