Continued tough economic conditions
Crest Nicholson's open market sales values recorded an average peak to trough in excess of 20% with some values falling in excess of 25%. Values stabilised between May and July 2009 and by October 2009 had started to bounce back by as much as 5% on certain sites.
Throughout this period the availability of mortgage finance was severely restricted. Demand for housing fell dramatically and, to survive, the housing sector halved its output capacity.
The consequence has been a significant reduction in the value of consented land banks leading to substantial balance sheet provisions, an ongoing drive amongst house builders to reduce debt to more sustainable levels, and an undermining of the viability and deliverability of future projects – particularly regeneration and brown field housing schemes.
Reduced capacity
Nationally, the Communities and Local Government (CLG) housing statistics show a reduction in new build completions in England from 193,100 in 2006/07 to 157,600 in 2008/09– a fall of 35,500. These figures continue to show a significant downward trend. Net additional dwellings in England (after deduction of demolitions) are anticipated to fall to 110,000 dwellings per annum in FY2009/10 and 2010/11.
Against this backdrop CLG continue to forecast a significant rise in household formation. There were 25,078,000 households in 2006 with an average occupancy level of 2.32 persons/household. This is forecast to increase to 32,139,000 households by 2031 with a reduced average occupancy of 2.13 persons/household.
To meet the resulting demand CLG still aspire to the delivery of 240,000 net additional new homes in England and Wales per annum. It is clear that the industry will only be able to deliver 50% of this rate for the foreseeable future. It remains unclear just how housing need will be met, given the reduced capacity and viability of house building, the growing regulatory cost base and the challenges of addressing the climate change agenda.
Impact of regulation
It is both desirable and helpful that housebuilding is appropriately regulated to ensure high quality delivery. However, at present, the cumulative impact of the rapidly increasing number and ambition of policies and regulations is such that cost sometimes outstrips income. Crest Nicholson, working with other major housebuilders within the Home Builders Federation (HBF), has been signalling the need for Government to strip out unnecessary costs, and focus on a streamlined and stable regulatory regime. Only then will the industry be able to meet the targets for quantity, quality and sustainability.
The rate of change and impact of new regulation is overwhelming. With ongoing consultations on the Code for Sustainable Homes, Minimum Energy Standards for fabric, the Definition of Zero Carbon, Allowable Solutions, Lifetime Homes, changes to the building regulations, increased space standards, extra planning gain tariffs and the introduction of the common infrastructure levy (CIL) - to name just some of the most important current regulatory issues. This sets an almost impossible background against which to set a responsible investment plan for growth.
Crest Nicholson will continue to work with Government and the HBF to try to create a more certain and deliverable policy and regulatory framework.
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See how we have responded to these conditions in Delivering homes and buying land.