Property development and financing are ever-evolving, with turbulent conditions across the globe making things unpredictable and volatile. To keep you informed and up-to-date, we’ve compiled the most essential property development finance news of the past few months and the summer of 2023.
Housebuilders ‘bringing less stock to market’
Housebuilding continues to be the weakest sector of the construction industry, experiencing the second fastest downturn since May 2020, according to findings from S&P Global/CIPS UK. Some of the most common survey responses related to subdued market conditions and the consequences of cutbacks to new build projects.
Although UK construction companies saw a slight increase in total activity during August, this was primarily driven by commercial and civil engineering growth, which masked the reduction in housebuilding.
After experiencing solid growth in the spring, August data showed a decline in new orders for the second time in three months. Survey respondents noted that rising interest rates and near-term economic concerns had resulted in more cautious client spending, especially in the residential sector.
Brian Berry, CEO of the Federation of Master Builders, commented that downturns in house-building rates could be a major concern that requires government attention.
“Having decided to only have 300,000 homes [a year] as an ambition [rather than] a target, the government needs to set out a clear plan for housebuilding to demonstrate that it is committed to substantially increasing housing supply. The sad fact is that the housing market in this country is in crisis and has been for a long time”
The lack of a visible government plan to address this is deeply concerning, and creates a lack of certainty, both for those people desperately looking to access the housing market and for local housebuilders looking to deliver the high-quality housing that their local communities need.”
Findings from S&P Global/CIPS UK go on to say that “construction companies are relatively cautious about the outlook for business activity during the next 12 months. The degree of positive sentiment slipped to its lowest since January, with concerns about the impact of rising borrowing costs and subdued housing market conditions often cited.”
Affordable home developments will drop by 22%
According to Octopus Real Estate’s ‘Closing the Gap: Unlocking Investment to Address the UK’s Affordable Housing Challenge’ report, there will be a 22% reduction in the number of new affordable homes developed over the coming months.
The report highlights that construction market pressures such as higher interest rates, inflation and a focus on repairing and maintaining existing stock have led to a ‘perfect storm’. Professor Alex Lord, Lever Chair of Town and Regional Planning, Department of Geography and Planning, University of Liverpool summarises it starkly:
“England’s housing crisis is now at least two decades in the making. A historic failure to build a sufficient number of new homes has caused a chronic undersupply of affordable housing in areas across the country.”
Now, over 33% of housing associations report average funding deficits of 11-25%. Because of the focus on improving current housing stock, at the expense of uncommitted projects, total spending has jumped from £5bn in 2018 to £6.5bn in 2022.
Alex Lord goes on to say:
“It is registered providers that will be essential to delivering the new affordable dwellings that the country so urgently requires. Yet the findings of this research suggest that these providers are unable to fulfil their purpose; those surveyed expect a significant reduction in their development pipelines over the short-medium terms. There is a considerable gap between aspirations and what registered providers expect to materialise over the coming years.”
ULEZ Expansion Prompts Differing Responses from Developers
On the 29th of August this year, London’s Ultra Low Emission Zone (ULEZ) was expanded to all London boroughs. Drivers of vehicles that don’t meet emissions standards will now have to pay £12.50 per day to drive in the capital. Speaking to Development Finance Today, those within the industry have given mixed responses regarding what this will mean for the market.
For example, one train of thought focuses on the benefits of cleaner air potentially increasing demand for housing in the capital. CEO of Portway Finance, Callum Taylor, said “The scheme should improve the living conditions of those within the new zones. If you look at the statistics with the original ULEZ, prices increased more within these areas…[a] reduction in air pollution and traffic is positive for their prospective buyers. However, Rico Wojtulewicz, head of housing and planning policy at the National Federation of Builders, suggests that it’s a stacking cost.
“Many workers travelling to jobs or head offices will pay an extra £12.50, and employers will need to subsidise that or fear losing staff. Deliveries to builders’ merchants will be more expensive and perhaps even delayed, as companies will attempt to load maximum stock in one trip. Some companies and workers from outside London have already said they will reconsider working there, particularly as they will not be eligible for support. [Also,] costs to upgrade or retrofit vehicles or fleets so businesses are compliant can run from tens or hundreds of thousands [which] needs to be paid for.
“All this stacking will see material prices and quotes go up to pay for increased costs, and with workers and businesses now avoiding the capital, greater competition for a shrinking pool of workers will see the price of works rise naturally.”
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