The B word and the housing market

The B word has been flooding in and around the market, which is perfectly natural given the current climate and activity or lack thereof. We as a company, whilst the individual members and directors definitely have their own opinions on the matter, took and carry on not taking a direct political position. Though, let us be sure, Brexit is both an issue and an opportunity, for both us as a company, a sector and the economy as a whole.

We all have seen the cataclysmic Bank of England reporting of a ‘stress test’ where there could be a house price crash of approximately 30%, in the event of ‘no deal’ or a ‘poor deal’ despite the repeated utterance that ‘no deal is better than a bad deal’ and the government has planned for all eventualities. We have even seen the prime minister vote for an extension with her Brexit secretary move the motion for delay but vote against the motion and her. As we all know ‘nothing has changed’. But how does this measure to JLL forecast this year for a plateau or stagnant home growth this calendar year with a 12.6% growth in the period 2019-2023 (JLL ‘Find the Gap’ 2018)? Frankly, it doesn’t. Both cannot be right. In reality and all likelihood, they are both incorrect. As Disraeli once said ‘there are lies, damned lies and statistics’, we will probably be somewhere in between and not in that conformality. There may be less transactions to not lead to variance of pricing but it is Archerfield’s belief that this only mirrors confidence, where the construction industry tends to be the canary in the mine, for UK economic consumer.

Will there be negative growth? Potentially, but in our opinion certainly not to that dramatic level. This is partly due to the basic familiar merits, that for UK’s housing market, demand vastly outstrips supply. But this has been measured recently due to the increase in construction activity, where the HIS market stats from Q4 2018, where there has been a slow down in new construction starts. However, NHBC the new homes warranty supplier, registered the most warranties in Q3 2018 than they had in the previous 11 years. These stats are compounded by 166 400 homes being registered as complete an increase of 1% last year but importantly for us, 3% increase for private enterprise companies. This doesn’t however, doesn’t address the imbalance within the wider context of society, inclusive of family fragmentation and greater population growth.

We have as an industry 17 housing ministers in the last 20 years (UK Construction Media July 2018) with the role being used often as a stepping stone into cabinet. The current incumbent Kit Malthouse is a bundle of activity with his slogan ‘more better faster’ with an ambitious target of 300,000 new homes per year by mid 2020s. The ONS again feels as though the government is going to fall short, with a prediction of under 165,000 new constructed dwellings from the ONS and 175,000 from JLL for 2019 with a fairly consistent growth rate (see the figure 8 – ONS). This is still falling far short of the overall need, leading to demand out stripping supply (especially in the lower portion of the market buoyed/fragmented by help to buy), further diminishing the effects of any suboptimal Brexit position. This is particularly prevalent in the South and East where Archerfield primarily operate. There has been growth however, marginal increases of under 10 homes per 1000 based upon the major demographic shift of population movement away from the centre of London leading to the increased burdens placed on those areas that are deemed in the ‘commuter belt’. Where according to the Centre for Policy Studies paper homes for everyone, there is currently a cumulative shortage of housing in the south east since 2000 of 96,000. This may alter with a potential surge in housing developments in the centre of London, as the current mayor comes to the end of his term.

Why has there been a lull in the numbers of construction starts? We think that this is directly due to the uncertainty surrounding the B word. The financial arrangements that are in place, still hold the residue of the risk and the affects from 2008-2010 where 1/3 of the SME housebuilders went under. This is entirely rational as they, as much as the consumers have their expectations and confidence. Can we expect a resolution to the Brexit madness? In all likelihood yes, but it is our belief that the cost for this will be a new prime minister with a deal in place by July alongside a stand still transition until December 2020. Theresa May has already stated that she will not run once more in a general election, there is evidence that the new Independence Group is affecting the Liberal Democrats and Labour more so than the current government. There’s a plausible argument that there will be a post Brexit bounce, with the pent-up investment currently not being deployed leading the reasoning that a new PM minister would seek to go to the voters once more. In the coming days/weeks we’ll put up a blog about who a future PM could be and their future affliction to the housing troubles.