Housebuilders look to the regions for new year cheer

The industry’s prospects are inevitably clouded by uncertainties over Brexit and the economy but some positive trends emerged towards the end of 2017 which bode well for the outlook in 2018.  One key industry forerunner, private housebuilding, ended the year with a flourish, encouraged by the Budget extension of Buy to Let to 2021 and, for now, continuing strong demand.

An upturn in private residential building work helped create a modest rebound in overall output in November, according to the latest purchasing managers index from IHS Market/CIPS. It recorded new residential project orders in November at the strongest since June.

Private housebuilders’ prospects for 2018 inevitably hinge on whether purchaser demand will hold up. On the upside, near-full employment and continuing low interest rates – which economists expect to reach 0.8% by the end of 2018 -  should help to maintain purchaser interest. The development pipeline in the sector also remains healthy. The latest Glenigan forecasts point to a 21 per cent rise in planning approvals in the first nine months of 2017 with rises in most English regions. The promising outlook for Build to Rent should also help to maintain industry volumes.

But the pace at which housebuilders start work on new sites will continue to depend on the health of the overall housing market. Here, the latest evidence points to a cooling, if relatively stable, national market. Although new mortgage approvals fell for the third month running in October, this was largely due to a shortage of houses for sale, according to the Halifax, and which may in turn augure well for sales of new build. The latest Halifax index showed house prices up 2.4% in the September- November quarter on the previous three months and 3.9% up on a year ago.

But the picture varies between regions and for housebuilders, areas further from London may continue to show more promise in 2018. Stronger private housing markets are among the key drivers behind Glenigan’s latest forecasts for an upturn in the value of underlying construction starts in key regions in 2018 including the East Midlands (where starts are forecast to rise by 31%), the North East (+7%), North West (+18%), South West (+13%), West Midlands (+12%) and Yorks & Humber (+17%).

Recent industry news also reflects a healthier housing market in the regions. Bellway’s latest full year results showed that the firm’s private house sales in the north increased by 7% to 3,897 whilst its sales in the south dipped slightly. The firm’s Yorkshire division increased output by 75% to 467 homes.

One trend which is also likely to help keep the industry busy in 2018 is the growing number of new dwellings created by converting larger houses into smaller units and flats and as well as shops and offices into homes. According to the Nationwide, these change-of-use units have more than doubled in the past decade to 37,000 in 2016/17, of which around 18,000 were granted under permitted development rights. If these are included using the broader measure, it says the number of dwellings now being created each year is only 3% below 2007 levels.