How do we save the wilting new homes market?

{"text":[[{"start":6.7,"text":"Spare a thought for anyone trying to sell newly built homes in the UK right now."}],[{"start":11.100000000000001,"text":"I imagine their sales meetings play out like Alec Baldwin’s scene in Glengarry Glen Ross, with “ABC” written on the blackboard — “always be closing,” he tells the desperate, dejected sales reps. “The money’s out there.”"}],[{"start":24.400000000000002,"text":"But what if the money’s not out there?"}],[{"start":27.150000000000002,"text":"This was meant to be the year it all started to get better. In January, mortgage rates were on a downward trajectory, transactions had returned to normal levels, and house prices were rising."}],[{"start":38.45,"text":"Then everything changed in February, thanks to you know who. We might not be experiencing the worst-case scenario suggested at the beginning of the war in the Middle East, largely thanks to China reducing oil imports, but higher interest rates have had a clear impact on the housing market."}],[{"start":54.650000000000006,"text":"Rapidly rising mortgage rates and economic uncertainty have postponed hopes of a housing market recovery. Demand for new homes, be it from investors or homebuyers, has shrunk further and the state of the housebuilding industry looks pretty dismal."}],[{"start":70.7,"text":"The peace deal has led to interest rate expectations falling and mortgage rates easing, but the fallout is still feeding through the global economy. For the housebuilding sector, the delayed recovery has presented them with difficult decisions that they can’t put off any longer."}],[{"start":null,"text":"

"}],[{"start":86.95,"text":"For some it just means a freeze on buying more land and recruitment — a problem for the future — while for others it has brought longstanding problems to the fore. Legacy issues with building safety and changes to business models are causing build and finance costs to rise while revenue struggles. Meanwhile, owners of smaller firms are leaving the market — mostly by choice but there’s a constant stream of them going bust."}],[{"start":111.1,"text":"For all the talk of hitting a 1.5mn housing target in England, the Starmer government has failed to understand the scale of the challenges the industry faces. Planning reform is important to the longer-term delivery of new homes but the more immediate problem has been a lack of demand and stretched viability — fewer people can afford to buy the homes for the price developers can build them at."}],[{"start":134.85,"text":"If there’s no one buying new homes, then they don’t get planned for or built."}],[{"start":139.75,"text":"As a result, the government is currently tracking below both the May and Johnson governments for total new homes delivered, and is below the run rate of the Sunak government, let alone what would be needed for 300,000 a year. It appears slogans and red caps aren’t enough to counteract inflation and interest rates."}],[{"start":null,"text":""}],[{"start":158.8,"text":"The good news for aspiring homeowners is that Andy Burnham suggested the government will shift its approach if he gets the keys to No 10, promising this week to embark on the “biggest council housebuilding programme since the postwar period”."}],[{"start":173.45000000000002,"text":"While such aspirations are understandable — and highly popular — the reality of the current environment makes it difficult. Again, it comes down to money — or the lack thereof despite any savings from lower housing benefit bills. With every government department calling for more funding, it’s looking like tax rises or reform will be needed."}],[{"start":194.45000000000002,"text":"Whoever is running the government, the priority should be supporting existing output and ensuring there’s a functioning housebuilding and construction sector for the future.  "}],[{"start":203.50000000000003,"text":"While it’s highly unpopular — just look at the number of people who like to dismiss Help to Buy as “Help to Sell” — the unavoidable truth is that the government will need to intervene to help developers. "}],[{"start":215.05000000000004,"text":"If it doesn’t, it looks increasingly likely that, when the housing market finally picks up, the industry won’t have the capacity or the pipeline of development projects to respond. Fewer new homes mean more rent rises, more children in unsuitable homes and more homeowners unable to move."}],[{"start":232.45000000000005,"text":"The fact is, we’ve become reliant on the market to build the homes we need. The shift started in the 1970s, when the large programme of council house building came to an end as funding was left unused and local authority bulldozers were pensioned off."}],[{"start":247.60000000000005,"text":"But our dependency accelerated more recently than that, including for the funding of affordable homes. From 2010, grant funding for social and affordable housing was cut. As a result, we became more reliant on private developers selling homes to fund affordable ones while housing associations needed to cross-subsidise theirs by building private rental or shared ownership ones. "}],[{"start":271.30000000000007,"text":"Inevitably, some housing associations started to act more like private developers, including buying land banks at the top of the market and ignoring their existing stock. That has left them compromised as a route for intervening in the market during the current downturn."}],[{"start":null,"text":""}],[{"start":287.30000000000007,"text":"So what can the government do now? The industry has been calling for everything from a new version of the Help to Buy equity loan to tax cuts, reduced regulation and flexibility around affordable housing commitments and other costs related to section 106 agreements, which compel developers to provide amenities or contribute to local infrastructure. "}],[{"start":307.55000000000007,"text":"All those come with compromises — something we’d be better at balancing if we had the long-promised housing strategy to guide decision-making. The Help to Buy equity loan did successfully increase the market share of new-build homes — though the housebuilders made off like bandits with the profits. "}],[{"start":325.25000000000006,"text":"This autumn could be the right time to introduce a more limited version if the interest rate and inflation environment allows. But it takes time to feed through into the market. Reducing S106 requirements might help on paper, but transferring new homes from “affordable” to “market” rates won’t help when you can’t sell them."}],[{"start":null,"text":""}],[{"start":345.65000000000003,"text":"More innovative state intervention has been happening recently, just not at sufficient scale — there’s plenty of developer appetite out there, but the biggest barrier is actually finding the money."}],[{"start":355.65000000000003,"text":"The Greater London Authority has taken a big step in becoming a “Singapore-style” developer with its £100mn investment in Silvertown in West Ham, taking an active equity stake from a US billionaire and delivering market homes alongside affordable ones. "}],[{"start":372.65000000000003,"text":"We’ve also seen the growth of local authorities working hand in hand with private developers and main contractors to build new homes across the country — everywhere from Altrincham to York via Plymouth."}],[{"start":386.00000000000006,"text":"But there is the growing concern that the government might be forced into doing something bigger than it expected. "}],[{"start":392.65000000000003,"text":"With increasing nervousness in the industry around financial stability, there is the possibility that we might see the government needing to step in and more directly support specific parts of the market if all other things fail. It’s possible that a housebuilder or major contractor might need to be bailed out — the Ministry of Housing, Communities and Local Government has already been asked by some concerned parties what plans and contingency measures they have in place in case a major housebuilder suffers serious financial issues later this year or next. And that was before the threat of a multibillion-pound class action alleging collusion was filed this week."}],[{"start":433.95000000000005,"text":"Unfortunately, we’re not going to see a quick return to large-scale new housebuilding by local authorities. But assuming Burnham isn’t going to start crashing developers’ meetings and giving expletive-laden pep talks to the sales teams, his government — if it is his government — will need to step in to help the housing market. Or it’s going to get very dysfunctional very quickly. "}],[{"start":454.85,"text":"Neal Hudson is a housing market analyst"}],[{"start":464.70000000000005,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1782990705_2170.mp3"}