3 July 2008 13:06

WHEN housebuilders spend billions acquiring their rivals just as house prices peak it's hardly surprising that the government too can get the housing market wrong.

Would anyone have guessed that the first birthday celebrations of the National Housing and Planning Advice Unit would include the release of a report called Why Affordability Still Matters? And who would have thought when they were set up in 2002 to combat low demand in the North and Midlands that the Housing Market Renewal Pathfinders would be lambasted by MPs for demolishing too many homes and not building enough new ones?

The original idea behind the pathfinders seemed sound. True, they were open to criticism for changing the character of areas, but empty homes would be demolished to make the ones left behind more attractive to potential home owners, allowing prices and neighbourhoods to recover. However, the pathfinders were set up just as the house price boom triggered by cuts in interest rates after September 11, 2001 was taking off. Prices were already rising.

As public accounts committee chairman Edward Leigh points out today: 'Even though the programme is now five years old and some £2.2 billion investment has been committed, it is difficult to tell whether pathfinder interventions are having any more effect on local housing demand than the normal operation of the market.'

When the NHPAU started work last June, that boom was within a few months of turning to bust - although virtually nobody realised that at the time or that the output of new homes would be lucky to reach half of the 240,000 a year target it was set up to promote. 

Housing minister Caroline Flint had a clear message to the NHPAU's One Year On conference yesterday: 'I've made it a challenge to myself, to my department and the other departments we work with to make sure that the short-term difficulties we're facing don't paralyse us or compromise our ability to meet the challenges of the longer term.'

She's right on that. What's less clear is whether the modest measures seen so far - like yesterday's rescue package or extending home ownership subsidies to households earning up to £60,000 just as house prices start to fall - will achieve anything more than give the impression that the government is 'doing something'.

The real long-term challenge is to control the housing market rollercoaster and stop it lurching from boom to bust and back again. That will mean something more fundamental than pathfinders or packages or intiatives - or even building 240,000 homes a year. 

Posted by Jules Birch, July 3 

Posted in Affordability, Housing market, Housing market renewal

2 July 2008 13:15

TODAY might have marked the beginning of the end of the housing crisis. Top housebuilder Taylor Wimpey was due to announce £500m of new investment and housing minister Caroline Flint was poised to reveal details of the government's market rescue package.

Instead things got even worse. Taylor Wimpey was forced to admit that the new investment the markets had expected only two days ago was not coming. 'In the light of current market conditions we have not been able to conclude a satisfactory transaction,' it said in a trading update [go here to download details and its presentation to City analysts]. It also announced the departure of its finance director, a £550m write-down on the value of its landbank and the loss of another 300 jobs. 

The situation is especially shocking since Taylor Wimpey is also a significant presence in the troubled Spanish and US housing markets. It thought it had learned the lessons of the US crash by cutting spending and jobs quickly but plainly even it has been caught out by the speed of the deterioration in conditions here.

Elsewhere in the construction industry, it was more doom and gloom. The RICS said workload in the private housing sector was falling at the fastest rate in the history of a survey that began in 1994. One housebuilding expert predicted that 100,000 jobs will go in the industry this year.

Cue the lifeboats. Flint revealed the bare bones of the market rescue package on the Today programme this morning [go here to listen again - but you'll have to scroll through to an hour and 15 minutes in]. There would be an additional £270m - she admitted this would be reallocated from the existing budget - to buy up unsold homes and there would be flexibility to bid for further rounds of the money on what sounded like an ad hoc basis rather than quarterly. And, as widely trailed last week, Housing Corporation payment terms would be changed so that builders get paid more up front. 

The details just announced here confirm that the £270m is part of the existing £8.4bn Housing Corporation budget for 2008-2011 and brings the total amount of that allocated to £3.6bn. A 'new national clearing house' would be set up so that housebuilders can approach the Corporation with proposals to sell unsold stock to housing associations - building on the £200m already announced (and reallocated from the existing budget). 

There would also be 'increasing flexibility around when providers can bid for funding' from the £8.4bn budget and be able to come up with proposals at any time rather than waiting for the quarterly bidding round. 

The good thing about the package is that flexibility - the room for manoeuvure that it leaves to bring funding forward to buy up unsold land and homes and do more in future. Further details may yet emerge but my instant reaction is that, compared to the housing market rescue package of 1992, this one is still puny. As a reminder, the then Conservative government came up with £577m of new - not reallocated - money for associations to buy up unsold homes. The results were far from perfect but the rough equivalent at today's house prices would be more like £1.5bn. 

The situation in the housebuilding industry now is even worse than it was in 1992. As an illustration, share prices have fallen so low that the government could comfortably afford to nationalise the leading companies (as Daniel Thomas noted in the FT yesterday). Crazy idea or not (and all their land would be publicly owned...hmm), the crisis surely calls for more than shuffling money around here and a bit more flexibility there.

Posted by Jules Birch, July 2

Posted in Finance, Housing associations, Housing market, Housebuilding

1 July 2008 11:08

AS the government's housing agencies work on the market rescue plan demanded by housing minister Caroline Flint, one consolation is that at least they have some inside knowledge of the market where prices are falling fastest.

New figures from the Nationwide this morning show that prices in Sheffield - the old stomping ground of Homes and Communities Agency chief executive Sir Bob Kerslake - have fallen an amazing 17% in the last year. That gives the city the dubious privilege of topping a league table ahead of Belfast (-11%), Birmingham, Manchester and Coventry (all -9%).

The second quarter figures give the first regional picture of the housing market crash. The Nationwide said prices were down 0.9% in the UK in June, 6.3% in the last year and 7.5% since their peak in October.

Unsurprisingly, given its spectacular price rises in the last two years, Northern Ireland is leading the way down with an 18.6% fall in prices since the second quarter of 2007. Scotland is the only region where prices are still higher than a year ago. Prices fell in Wales and all 10 English regions, with the downturn spreading to London and the South East.  

The big question now is how much further prices will fall. Housebuilders already seem to be factoring in a 15% decline - the amount by which Taylor Wimpey cut the valuation of its landbank yesterday. However, as Brian Green argues in his blog on construction and economics, the problem for them is that nobody really knows when the bottom will be reached.

The Nationwide argues that transactions are the key to house price movements and they are plummeting. Bank of England figures for mortgage approvals yesterday showed they were down 28% between April and May and 64% on a year ago.

Mortgage lenders tend to look on the bright side, so the outlook from chief economist Fionnuala Earley qualifies as distinctly bearish. 'With house purchase transactions so far below their long term trend it seems unlikely that there will be any rapid turnaround in housing market fortunes in the coming months. However, as prices continue to fall affordability measures become more favourable for those in a well financed position to be able to buy.'

Posted by Jules Birch, July 1

Posted in House prices, Housing market, Housebuilding, Homes and Communities Agency

27 June 2008 14:09

AFFORDABLE housing was meant to be one of the key issues of Gordon Brown's premiership. But by cruel irony a year that has seen the announcment of the biggest increase in investment since the early 1990s also saw the return of a more unwelcome aspect of that period - a housing market crash.

David Orr of the National Housing Federation joins the assessment of Brown's first year in office today by 'warmly applauding' his early decision to set the ambitious target of 3m homes by 2020 but calling for more support for housing associations in the wake of the dramatic change in market conditions. 

Caroline Flint, the housing minister who took over after the good bit and is having to make the best of the bad, does her best to sound upbeat in an interview in the Financial Times today. The paper reports that the government will announce a new package of initiatives to help homeowners and housebuilders next week, with one eye-catching proposal that the Housing Corporation will give them bigger upfront payments to improve their cashflow. 

It remains to be seen what else the package will include but it seems unlikely to be enough for the NHF. Orr argues - unsurprisingly - that ministers should 'support housing associations in developing mortgage rescue schemes that prevent households from losing their homes, and they should help associations buy unmarketable homes from private developers'. 

The government should listen both to that and to calls from the British Property Federation for action on build to rent. The housing crisis certainly needs a more radical response than has been seen so far. Otherwise Gordon Brown will be remembered as the prime minister who pledged 'an end to boom and bust in the housing market' when Labour won power in 1997 and has ended up presiding over both and as the man who promised the biggest expansion of housebuilding in 30 years and ended up with the lowest level of output in 60.

Posted by Jules Birch, June 27 

Posted in Housing associations, Housing market, Politics

24 June 2008 12:01

APRIL was the cruellest month for the housing market - the time when everyone with a stake in rising house prices realised that there would be no Spring bounce to come to their rescue. But things got even worse in May, according to new mortgage figures released by the British Bankers Association this morning.

Mortgage approvals for house purchase were down a staggering 56% on May last year - much worse than the 35-40% fall in loans and transactions seen so far - and by 20% on awful April. Approvals are one of the lead indicators for the market and they are signalling that prices will continue to fall and that the rate of decline may get even steeper.

We have also reached the point where, thanks to price falls, the value of loans approved is falling faster (57% over the year) than the number of loans.

With figures like this at the normal peak of the house buying season, any first-time buyer and anyone thinking of trading up would have to be very brave or very foolhardy to take the plunge. Add in the continuing shortage of mortgages, and higher rates for those that are available, and the market will continue to seize up. 

Posted by Jules Birch, June 24

Posted in Housing market, Mortgages