Builders in the UK struggling to build enough homes to meet demand

Improved economic conditions in the UK are encouraging private house builders to increase construction but they are still not building enough homes, according to a new analysis. According to the latest report from property firm Savills, house builders are benefitting from the gathering pace of housing market recovery and the revival is already showing signs of boosting construction levels.

As builders reported growing company profits over the summer, some of the bigger players voiced their intention to increase production following a surge in buyer demand prompted by the government’s incentive Help to Buy scheme. For many, this means building on an already busy spring. Government statistics show that building work started on just over 23,000 private homes in England during the first three months of this year. This represents an increase of 18% on the same period last year.

The rise in construction predates the launch of the £130 billion Help to Buy scheme in April aimed at stimulating house building by helping buyers on and up the property ladder. Under the first part of the scheme, buyers of new build homes can borrow an equity loan worth up to 20% of the value of a property priced up to £600,000. The second and more radical part of the measure which offers a mortgage guarantee to buyers of all properties comes into play in January 2014.

The government says that the Help to Buy equity loan encouraged almost 7,000 reservations in the first three months. There are now more than 400 builders across the country registered for Help to Buy, some of them smaller developers that would have been kept out of previous schemes. However, the report points out that critics of Help to Buy, which include the International Monetary Fund, the previous Governor of the Bank of England and the Office for Budget Responsibility, fear that the scheme will simply stoke up property prices rather than encourage house builders to build.

Quote from : “As governments around the world continue to scratch their heads with regards to ideas to inject confidence into their local economies, it seems that the property market is very much under the spotlight.”

The report also says that it is not the only government measure helping to buoy the property market. Funding for Lending, designed to provide banks with cheap money, has had a greater impact on the mortgage lending than it has on lending to small businesses. Growing demand from home buyers with access to an improved mortgage market has in turn served to boost sales.

Barratt has indicated that their completions of new homes would rise by 20% compared with two years ago. ‘The Help to Buy initiative will be particularly beneficial in areas where the property market has been more subdued, as building sites which may not have previously delivered the necessary sales volumes, become commercially viable,’ said Yolande Barnes, director of residential research at Savills. ‘This said, house builders are starting from a very low level. At an average rate of 115,000 new homes a year, house building levels in England are currently half of those needed to meet the formation of new households which is expected to rise by 220,000 a year. Last year, private builders delivered just 88,000 homes. Since 2007, building levels have dipped to rates not seen since the 1920s,’ she pointed out.

‘Moreover, although the number of starts rose in the first quarter this year, the number of completions fell over the same period. That means the recent increases in house building will take time to feed through to sales,’ she added.

The report also says that even with a government boost, there are constraints to the number of homes private house builders can physically deliver. Some cite difficulties in recruiting a large enough workforce as a current barrier to building more. Others blame a slow planning system as another frustrating hurdle. Indeed, Barnes said that it is questionable whether private house building for sale can ever provide the volumes necessary to meet demands of the growing population. ‘At its highest in the 1960s, private house building delivered about 200,000 homes a year. We are unlikely to return to those levels in today’s market. Government incentives schemes do not alter the fact that demand for homes remains constrained by property prices that are high relative to income,’ she added.

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