The UK residential development market: Are we building enough homes and what is the pipeline of land to put them on? Lucy Greenwood, Savills Residential Research 16th March 2016 Who is Housing Supply building the market new homes?
What is affecting the Development Strategic land delivery of new land homes? Housing market The shape of price growth 5
Price and transaction volume recovery
Source: Land Registry
150% London 140%
130%
120% South East 110% East England & Wales South West
Pricepeak vs 100% West Midlands (region) East Midlands 90% Wales North West Yorks & Humber 80% North East 70% 60% 65% 70% 75% 80% 85% 90% 95% Transactions vs pre-crunch average Mid cycle reference point in the residential market?
Source: Savills
4.0 12.0
3.5 10.5
3.0 Prime central 9.0 London to UK house price 2.5 7.5
London to UK to London 2.0 6.0 London to UK House Price 1.5 4.5 UK to London Central Prime
1.0 3.0 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 House prices and transactions
Source: HMRC, Nationwide, Halifax, HM Land Registry (England and Wales)
UK Transactions Nationwide Halifax Land Registry 120 2,000,000 1,800,000 100 1,600,000 1,400,000 80 1,200,000 60 1,000,000 800,000 40 600,000
Index (100=2007 Peak) (100=2007 Index 400,000 20 200,000 0 0 Number of Transactions in UK in Transactions of Number Mar-15 Mar-14 Mar-13 Mar-12 Mar-11 Mar-09 Mar-10 Mar-08 Mar-07 Mar-06 Sep-15 Sep-14 Sep-13 Sep-12 Sep-10 Sep-11 Sep-09 Sep-08 Sep-07 Sep-06 Price growth to spread out from London
5 Year house price inflation 2016-2020
Source: Savills forecasts for house price growth 5yrs 2016-2020. Published Nov 2015 Rental demand is here to stay
Source: Savills, DCLG
80%
70%
60% Owner Occupied
50%
40%
30% Social Rented
20% Private Rented 10% Proportion of housing in England
0% 2015 2020 2000 2005 2010 1995 1980 1985 1990 1970 1975 1955 1960 1965 1945 1950 1930 1935 1940 1925 1915 1920 Spread of PRS, areas with more than 15% of households in Spread of PRS, areas with more than 15% of households in PRS PRS
Source: Census
1991 2001 2011 Supply Ongoing shortfall of supply
Source: Savills using DCLG data, HBF and TCPA
300,000
TCPA need projection (Holmans) 250,000
Permissions 200,000 Other starts 150,000
England New build 100,000 starts
50,000 Additionalhomes per annum in
0 Mar-16 Mar-14 Mar-15 Mar-13 Mar-12 Mar-11 Mar-09 Mar-10 Mar-08 Mar-07 Mar-06 Sep-16 Sep-14 Sep-15 Sep-12 Sep-13 Sep-11 Sep-10 Sep-09 Sep-07 Sep-08 Sep-06 Transactions and private housing starts in England have been at a 10 to 1 ratio over the last 25 years
Source: HMRC, DCLG
2,500,000 Annual Transactions (lhs) Annual Private Housebuilding Starts (rhs) 250,000
2,000,000 200,000
1,500,000 150,000
1,000,000 100,000
Annual transactions 500,000 50,000
0 0 Annual private housebuilding starts 2008 2009 2011 2012 2013 2014 2006 2007 1998 1999 2001 2002 2003 2004 1994 1996 1997 1987 1988 1989 1991 1992 1993 1984 1986 1977 1978 1979 1981 1982 1983 More than just housebuilding – conversions and change of use
Source: DCLG
35,000 New build Net conversions 30,000 Net change of use Net other gains and losses 25,000 Demolitions Total net additional dwellings 20,000 15,000 10,000 5,000 0 Net Net additionaldwellings 2014/15 -5,000 South East London South West East of North West West East Yorkshire North East England Midlands Midlands and The Humber Last years data on regional shortfalls
Source: DCLG, HBF using Glenigan, TCPA
Net additional dwellings Consents Housing need Shortfall (net additional vs need) 60,000 60%
52% 50,000 50%
40,000 40% 34% 32% 33% 30,000 30%
24% Shortfall 20,000 20% 17% 16% 10,000 10% 8% 5% Number Number of homes (year to Q1 2015) - 0% London South East East of South West Yorkshire East North North East England West Midlands Midlands West Who is building? Private sector have been building the majority of homes
Source: DCLG, NB: This uses adjusted quarterly completions data to 2006, applies the proportions of private, RSL and LA from quarterly data and assumes all LA and RSL completions are affordable
Unsupported market sale Supported sales (Help to Buy and New Buy) Implied affordable delivered by private sector Housing associations Local authorities
200,000 175,000 150,000 125,000 100,000
(England) 75,000 50,000 25,000 0 Number Number of homesnew completed
Year to March Larger housebuilders are building increasing proportions of new homes
Source: NHBC
500+ units 101-500 units 1-100 units 100% 90% 80% 70% 60% 50% 40% 30%
New New homes registered 20% 10% 0% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 More than 50% of new homes from top 9 plc housebuilders
Source: Housebuilder annual report, financial year
Barratt Developments PLC Persimmon PLC Taylor Wimpey PLC Bellway PLC Redrow PLC Bovis Homes Group PLC Berkeley Group Holdings PLC Galliford Try PLC Crest Nicholson Holdings PLC 80,000 70,000 60,000 50,000 40,000 30,000 20,000
Number Number of homes completed 10,000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 Constraints Shared Starter Homes Help to Buy ownership
Direct Buy to Let Planning commissioning At least 57%
of Local Planning Authorities lack a five year land Housebuilder constraints supply
Source: HBF Q4 2015 Survey
65% 41% 32% 18% 15% Planning delays Labour Labour costs Land availability Land prices availability Development land market Wide variation in land market strength
Source: Savills
Land price versus '07/'08 peak -60% -40% -20% 0% 20% 40% 140 Oxford London 120 Sevenoaks 100 Cambridge 80 UK Greenfield Reading/Bracknell 60 Below peak UK Above peak 40
Index (100=2007 peak) (100=2007 Index UK Urban Milton Keynes 20 Rugby 0 Leeds
Peterborough Land market competition most notable in the most constrained markets
Source: Savills, HM Land Registry
Strong markets with Strong markets Central London little land choice with more land 60% choice Existing Wealth Belts 50%
Houseprice City and East of City 40% peakvs '07/'08 Reading/Bracknell Cambridge 30% Oxford Milton Keynes Brighton 20% Aberdeen Sevenoaks Luton Bristol Crawley Lincoln 10% Haywards Heath Solihull Land value vs '07/'08 peak 0% -70% Nottingham -50% -30% -10% 10% 30% 50% -10% Leeds Wolverhampton Bradford Telford -20% Lagging markets with land choice -30% Development land ownership
Source: Savills Development Database
Housebuilder Other Developers Promoter and Investors Other Private Sector Public Registered Provider 400,000 350,000 300,000 250,000 200,000 150,000
Residential plots Residential 100,000 50,000 0 Outline Plans Outline Plans Reserved Matters Detailed Plans Reserved Matters Detailed Plans Submitted Granted Submitted Granted Granted Application process Detailed permission Listed housebuilders permissioned land banks growing at c.10% per annum
Source: Housebuilder annual report, financial year
Galliford Try Crest Nicholson Redrow Bovis Bellway Berkeley Barratt Taylor Wimpey Persimmon 400,000
350,000
300,000
250,000
200,000
permission 150,000
100,000
50,000 Number Number of with plotsfull planning 0 2010 2011 2012 2013 2014 2015 ‘Margin discipline’ maintained
Source: Thomson Reuters
30 20 10 0 -10 Barratt Bovis -20 Redrow items, % Taylor Wimpey -30 Persimmon Crest Nicholson -40 Bellway -50 Berkeley Operating Operating margin net exceptionalof Average -60 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Strategic land market Strategic and development land ownership
Source: Savills Development Database, at January 2016
Housebuilder Other Developers Promoter and Investors Other Private Sector Public Registered Provider 700,000
600,000
500,000
400,000
300,000
Residential plots Residential 200,000
100,000
0 Pre-Planning Outline Plans Outline Plans Reserved Matters Detailed Plans Reserved Matters Detailed Plans Submitted Granted Submitted Granted Granted Application process Detailed permission Top housebuilders are increasing their volume of strategic land and have been increasingly bringing their own land through the planning system
Source: Housebuilder annual reports, financial year
Berkeley Crest Nicholson Bellway Bovis Redrow Barratt Taylor Wimpey 300,000
250,000
200,000
150,000 permission 100,000
50,000 Number Number of without plots planningfull 0 2010 2011 2012 2013 2014 2015 Outlook Housing need 2014 delivery Likely future delivery → → → → Households able to afford market homes → → homes housing homes Buy to Let? Market new new Market new Market Starter Homes Help to Buy: to HelpBuy: Equity Loan Help to Buy: Equity Loan Equity Buy: to Help Shared Shared Household income Household ownership
Shared ownership Shared Future sub-market Households in need rent funded through of sub-market Much reduced housing cross- Affordable rent delivery of sub- subsidy market rent funded by Social rent grant and Section 106 Buy to Let v First Time Buyers PRS is here to stay
Source: Savills, CLG, CML (English Housing Survey)
Estimated growth in PRS (EHS) Savills Estimate of Growth in PRS (UK) BTL lending for HP 400,000
350,000
300,000
250,000
200,000
150,000
Number of households of Number 100,000
50,000
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Savills, NHBC, housebuilder Scenarios for development land values annual reports
Source: Savills
SCENARIO 1
140 Supply of land constrained UK completions peak at Plc housebuilder 226,000 a year Other players pushed out of the 120 operating margin peaks at 9,859 NHBC market and fewer homes average 17.7% registered house delivered builders 100
80 Static land values 17,842 NHBC registered house SCENARIO 2
values 60 builders Plcs operating Increased supply of land in the margin close to highest demand areas
(100= (100= 2007 peak) 40 target, averaging Lehman UK completions fall 16.5% Space for all players in the Brothers go to 137,000 homes land market and more homes 20 bust per year delivered
UK greenfieldUK development land Negative operating profit for plc housebuilders on average 0 What next?
Macro Housing & planning policy • Interest rates lower for longer 1. Home ownership 2. Housing supply • Brexit uncertainty • Business investment • Starter homes • Construction labour • Buy to let restrictions • Household formation • Direct commissioning on public land
• Local Plan led v Appeals • Garden villages
• PDR • Brownfield registers • Density on transport © Savills 2016