NEW HOMES

2

TO OUR WINTER 2016 EDITION OF NEW HOMES RESIDENTIAL VIEW. It has been well documented that we are still falling some 100,000 new homes short of what is need to satisfy demand and although there has been some progress made in recent years, reaching the almost mystical target figure of 220,000 new home in a year seems a very long way off.

In this edition we have focused on answering three of the most important questions regarding new home delivery in England. What are we building? Where are we building it? And does it fit the local market? Our experienced new homes teams across the country have a proven track record of progressing residential development schemes, both small and large, from inception to successful sale. Please contact a member of our team (contact details at the back of this report) to discuss your requirements, we would be delighted to help you.

Rory O’Neill Partner, Head of Residential Division Residential Sales

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Figure 1 English New Home Construction Starts & Completions Construction Starts

Construction Completions

Source: Department for Communities and Local

Government

Analysing the recent and likely future performance of the economy is difficult, given the lack of data covering the period after the UK’s vote to leave the EU. Indeed, there have been some very mixed messages.

While the Government has now said it will trigger Article 50 by the end of March 2017, the overall backdrop is one of uncertainty, as it may take considerable time to establish a detailed framework for a future UK-EU relationship.

Initially, in the weeks following the referendum, there was a string of negative surveys from organisations such as Markit, GfK, the RICS and the CBI. However, more recent surveys have shown a rebound in sentiment.

In terms of hard data, the Q2 GDP figure was a robust 0.7% – up from 0.4% in Q1 – although growth slowed towards the end of the quarter and economic growth forecasts for this year and next year have been revised down. However, the consensus is that the UK will avoid a recession.

The pound remains down by around 10% against the major currencies – which seems to be feeding through to stronger exports – but that means higher prices and inflation has already started to rise. The labour market is still strong, although confidence has weakened slightly.

The August interest rate cut and additional quantitative easing from the Bank of England were welcome and should support the economy in the coming months. GDP growth forecasts vary but the majority of major forecasting houses suggest growth of around 1.6% in 2016, falling sharply to 0.7% in 2017.

The early data coming through post-referendum suggests that values in the national housing market appear to be holding up. However, it is still very early days and evidence of true market sentiment is unlikely to appear in the prominent housing market indices until late this year. Transactional activity remains at a historically low level, with most English regions witnessing 20-30% fewer sales than normal. This trend is most evident in London where some boroughs are experiencing sales volumes at 50% below their pre-2008 levels.

In the new homes market, we are still falling some way short of meeting demand. The graph below shows new home starts and completions. It clearly illustrates that while construction levels have recovered considerably from the 2007/2008 market downturn, completions in the year to June 2016 are still around 15% down on the five–year average preceding the downturn.

MARKET OVERVIEW

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4

the heat map on page 6 shows, the notable pattern emerging is the significant lack of activity within the London commuter belt. Given that this area is arguably experiencing the greatest demand for housing in the country, it is easy to see why house price appreciation has exceeded all other areas in recent years. The map also shows that the greatest level of new home activity is concentrated around the East Midlands and the East, with the notable exceptions of coastal areas, which tend to be constrained by limited infrastructure and weaker demand.

In terms of hard data, the Q3 GDP figure was a healthy 0.5% against 0.7% in Q2 and 0.4% in Q1, although economic growth forecasts for this and next year have been revised down. However, the consensus is that the UK will avoid a recession.

Moving on to the most successful areas, the London boroughs of Tower Hamlets and Greenwich are helping to alleviate the chronic shortage of homes in London. With both areas benefiting from a healthy pipeline of forthcoming schemes,

Source: Department for Communities and Local Government

Figure 2 New Home Construction Percentage of new home construction by property size

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WHAT, WHERE

What are we building? As can be seen in Figure 2, in the last year, 1 and 2 bedroom properties accounted for the lowest proportion of the total new homes built for 14 years. In 2015/2016, 70% of all new homes built had three or more bedrooms.

The difference between the average sold price of new homes and that of existing ‘second hand’ property has also risen sharply to its highest level in 14 years, with the premium currently standing at 30% (see Figure 3). While the high proportion of homes with three or more bedrooms may explain this disparity to a degree, it is a trend that policy makers should look to reverse. Historically, this premium has hovered around the 25% mark.

Where are we building? By analysing and comparing private new home construction levels with existing private housing stock levels, we have established relative construction activity in different areas. As

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What type of new homes are we building, where are we building them and are they the right type of property for their local market? These are three important questions that we aim answer in this report.

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Source: UK House Price Index

Figure 3 New Homes Vs Second Hand Homes How much more is the average new home sold price vs the second hand average?

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including Wood Wharf and Greenwich Peninsula, we expect the boroughs to maintain their position in our 2017/2018 table. Other areas worth mentioning are Corby in Northamptonshire, whose private housing stock has grown by a considerable 7.4% in the previous five years, and Cambridge, which is experiencing some of the greatest demand outside of the capital.

Does it fit the local market? Is the right type of private property being built for the area and its residents? In a national property market where housing affordability for local young residents is a major issue, this is one of the greatest concerns. To answer this sensitive question we have examined how close the average new home sold price is against the average second hand house price (the existing housing stock) in the area, as shown in Figure 6.

We analysed the data for all of England’s Metropolitan Districts, London Boroughs and Local & Unitary Authorities, with some interesting results. The league table that ranks the lowest new

home value against the existing stock is dominated by areas that are experiencing high levels of demand and, consequently, affordability issues. This shows that the market is successfully delivering (relatively) affordable new homes in these areas, even if existing high prices do not make it feel this way to local residents. A good example of this is Oxford, where affordability issues are the greatest outside London. The average new home price is some 13% below the existing average.

At the other end of the scale the top two areas that are delivering proportionately more expensive new homes are the commuter towns of Harlow (Essex) and Gravesend (Gravesham, Kent). This could be a sign that developers in these areas are targeting the London outflow buyers, rather than catering for the needs of local residents.

6

Rank Area Increase

1 Tower Hamlets 9.3%

2 Corby 7.4%

3 North West Leicestershire

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4 Hinckley and Bosworth

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5 Greenwich 6.1%

6 Telford and Wrekin

6.1%

7 Dartford 5.8%

8 Chorley 5.7%

9 Cambridge 5.4%

10 South Norfolk 5.4%

Rank Area Increase

1 Blackpool 0.2%

2 Hyndburn 0.5%

3 Wirral 0.5%

4 Brighton & Hove

0.6%

5 Harrogate 0.7%

6 Stockport 0.7%

7 Pendle 0.7%

8 Enfield 0.7%

9 Westminster 0.8%

10 Barrow-in-Furness

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Rank Area Difference

1 Harlow 112.1%

2 Gravesham 97.6%

3 Preston 95.5%

4 Rochford 90.2%

5 Middlesbrough 88.0%

6 Nuneaton & Bedworth

84.2%

7 Sunderland 80.1%

8 North Tyneside 80.0%

9 Halton 78.2%

10 Wigan 73.6%

Rank Area Difference

1 Surrey Heath -25.6%

2 East Dorset -18.9%

3 Richmond upon Thames

-13.7%

4 St Albans -13.4%

5 West Dorset -13.1%

6 Canterbury -12.9%

7 Oxford -12.5%

8 West Devon -12.2%

9 Kensington and Chelsea

-11.6%

10 Bournemouth -8.7%

STO

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GR

OW

THFigure 5 Most Active New Home Areas Increase in local private new home stock levels in the previous 5 years

Top 10 Top 10Bottom 10 Bottom 10

Figure 6 Average New Build Price Vs Average 2nd Hand Price How much more expensive are new homes compared with the local average

Figure 4 - Heat Map The five–year growth rate of private housing stock

Source: Department for communities and local government

5-Year Growth (%)

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carterjonas.co.uk 7

Investor Area Focus - London

Prime Central London: Kensington & Chelsea• Average house price: £1,298,651• Average new home price: £1,147,555• Private new homes currently in the pipeline*: 2,759• Social rented & intermediate homes currently in the pipeline*: 983• Average gross rental yield: 3.3%• 12–month house price appreciation: -3.0%• Average new build £ per square foot achieved in 2016: £1,906• Rental values in the year to Sept 2016: +1.3%• Average 1 bed private rent: £2,223pcm/£513pw• Average 2 bed private rent: £3,393pcm/£783pw• Average 3 bed private rent: £7,931pcm/£1,830pw• Percentage of housing stock in the Private Rented Sector: 38%

Outer Prime London: Wandsworth• Average house price: £618,417• Average new home price: £642,693• Private new homes currently in the pipeline*: 11,039• Social rented & intermediate homes currently in the pipeline*: 2,012• Average gross rental yield: 3.9%• 12–month house price appreciation: +9.3%• Average new build £ per square foot achieved in 2016: £864• Rental values in the year to Sept 2016: +0.5%• Average 1 bed private rent: £1,660pcm/£383pw• Average 2 bed private rent: £2,175pcm/£502pw• Average 3 bed private rent: £3,285pcm/£758pw• Percentage of housing stock in the Private Rented Sector: 34%

Greater London: Hillingdon• Average house price: £415,001• Average new home price: £473,398• Private new homes currently in the pipeline*: 2,668• Social rented & intermediate homes currently in the pipeline*: 402• Average gross rental yield: 3.7%• 12–month house price appreciation: +19.7%• Average new build £ per square foot achieved in 2016: £524• Rental values in the year to Sept 2016: +2.6%• Average 1 bed private rent: £1,001pcm/£231pw• Average 2 bed private rent: £1,330pcm/£307pw• Average 3 bed private rent: £1,612pcm/£372pw• Percentage of housing stock in the Private Rented Sector: 19%

Investor Area Focus – The Regions

The North: Harrogate• Average house price: £275,513• Average new home price: £347,126• Average gross rental yield: 3.6%• 12–month house price appreciation: +9.3%• Average new build £ per square foot

achieved (2016): £301 (town)• Average 1 bed private rent: £575pcm/£133pw• Average 2 bed private rent: £750pcm/£173pw • Average 3 bed private rent: £950pcm/£219pw• Percentage of housing stock in the

Private Rented Sector: 19%

The East: Cambridge• Average house price: £422,979• Average new home price: £604,462• Average gross rental yield: 3.2%• 12–month house price appreciation: +8.4%• Average new build £ per square foot

achieved (2016): £500 (town)• Average 1 bed private rent: £1,040pcm/£240pw• Average 2 bed private rent: £1,350pcm/£312pw• Average 3 bed private rent: £1,550pcm/£358pw• Percentage of housing stock in the

Private Rented Sector: 28%

The South: Winchester• Average house price: £384,375• Average new home price: £485,075• Average gross rental yield: 3.4%• 12–month house price appreciation: +3.5%• Average new build £ per square foot

achieved (2016): £493 (town)• Average 1 bed private rent: £795pcm/£183pw• Average 2 bed private rent: £1,000pcm/£231pw• Average 3 bed private rent: £1,350pcm/£312pw• Percentage of housing stock in the Private Rented

Sector: 15%

MARKETApril’s introduction of a 3% stamp duty surcharge on all second home purchases seems to have achieved its aim of cooling the investment market. The latest data from the Council of Mortgage Lenders shows that Buy-To-Let mortgage advances have fallen by around 50% year-on-year in the four months since its introduction. However, recent anecdotal and survey-based evidence seems to suggest that appetite is starting to return to this area. With most new build apartment markets being heavily reliant on demand from investors, this trend will be warmly welcomed by developers and agents alike.

*As of July 2016, unless otherwise statedSources: Carter Jonas Research, UK House Price Index, ONS, Molior London, VOA, 2011 Census (projected)

© Carter Jonas 2016. The information given in this publication is believed to be correct at the time of going to press. We do not however accept any liability for any decisions taken following this report. We recommend that professional advice is taken.

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Heather LittlejohnPartner, Head of London New Homes

020 7518 3255 / 07788 296653 heather.littlejohn@carterjonas.co.uk

Lisa SimonHead of Residential Lettings

020 7518 3234 / 07976 761721 lisa.simon@carterjonas.co.uk

Mark WoodPartner, Eastern New Homes

01223 403331 / 07711 078857 mark.wood@carterjonas.co.uk

Lee LaytonResearch Analyst

01604 608212 / 07768 308737 lee.layton@carterjonas.co.uk

Marika BrundellAssociate, Eastern New Homes

01223 403330 / 07730 140079 marika.brundell@carterjonas.co.uk

Darren YatesHead of Research

020 7518 3343 / 07788 345915 darren.yates@carterjonas.co.uk

Anne HaggasHead of Northern New Homes

01423 707817 / 07818 522884 anne.haggas@carterjonas.co.uk

Claire Johnson Associate Partner, Head of Southern New Homes

01865 404440 / 07584 470919 claire.johnson@carterjonas.co.uk

OUR EXPERIENCED NEW HOMES TEAM HAS A PROVEN TRACK RECORD IN PROGRESSING SCHEMES, BOTH SMALL AND LARGE, FROM INCEPTION TO SUCCESSFUL SALE.

James BainbridgePartner, Head of Planning & Development

01865 404437 | 07887 834070 james.bainbridge@carterjonas.co.uk

Rory O’NeillPartner, Head of Residential

01672 519705 | 07801 666120 rory.oneill@carterjonas.co.uk

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