UK House Builders Project 18% Increase in 2015 Output: Details and Implications

There certainly are hopeful signs for more houses in the UK. But it’s still short of goal – releasing more land in a faster permitting process would help.

 

After nearly two decades of inadequate homebuilding, and particularly following the 2008 financial crisis, construction firms are reporting stronger numbers in residential building. It turns out that private strategic land partnerships are playing an important role in this, but a real and necessary surge in new homes will come when one or several conditions change that would allow it.

 

The year 2015 started slowly, with fewer permits and completions being reported due to uncertainty in anticipation of the national election in May. Once that was past – and the Conservative victory erased worries over a mansion tax – the industry picked up. Surveyed house building firms project an overall 18 per cent increase over 2014, when 141,000 homes were built, which computes to 166,380 homes to be completed by year’s end. Financiers engaged in UK land investment should be cheered by that, but with full understanding that the country should be building closer to 240,000 or 250,000 homes per year in order to keep up with population growth and demographic change.

 

Another indicator is purchasing behaviours in the construction industry, as measured by the Markit/CIPS survey. It rose to 58.1 in June, eight points above the line that separates expansion and contraction. Even more, 62 per cent of construction industry managers predict increased output by mid-2016, the highest level of optimism in a dozen years.

 

For investors in alternative investment funds that target specific regions, the National House Building Council provides geographic breakdowns in house builder registrations. They include:

 

• Eastern England – Builders currently planning 4,318 new homes, a 70 per cent increase in new registrations.
• Northern Ireland – With a 42 per cent increase in registration.
• South East – Registrations are up 47 per cent.
• Yorkshire and the Humber – Registrations up by 33 per cent with 2,223 new homes.
• South West – A 38 per cent increase with 4,486 new homes.

 

Notably, London’s 5,622 new homes represent a 29 per cent decline relative to Q1 2014. The North East also experienced a 10 per cent drop in 2015 vs. 2014 (Q1 figures).

 

For investors who prefer working in strategic land (a purchase and development of land that requires planning authority change permission), it’s important to note that critics of the UK’s slow build in residences claim that the UK’s planning system bears much of the blame for failing to meet the critical demand. The Government reforms, devolving authority to local councils with the National Planning Policy Framework enacted in 2012, has helped. But the Home Builders Federation says moving from outline to detailed planning is a bottleneck, frustrating to builders as much as investors (for example, those alternative investment funds’ partners) and ultimately to homebuyers themselves.

 

NIMBYism on the local level can be just as stymying, often driven by the desire to preserve greenbelts. Releasing more land would almost certainly mean more homes. Research from the Institute for Public Policy Research found that between 2000 and 2007, residential land prices rose 170 per cent while built homes rose only 124 per cent. This explains in part why strategic land investing can be a good gamble, and yet why it can be so difficult – the planning authorities and communities hold a great deal of power in the equation.

 

To put all of one’s wealth into alternative investments would almost never make sense for the seasoned investor. But the opportunities in land and housing certainly appear to be good in the current economic cycle. Whether experienced or new to real estate, the investor is strongly encouraged to discuss land and building positions with an independent financial advisor.