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Falling levels of house building mean there is no end in sight to the affordability problems facing the housing market with a new research report warning that there is a growing likelihood that in five years time we could be building fewer homes than we are today. The report, published by Hometrack, the housing intelligence business, highlights how new housing starts in England have already fallen by 10% over the last 18 months and points out that the credit crunch, combined with weaker conditions in the housing market, are likely to see this trend continue over the next few years.
As Richard Donnell, Director of Research at Hometrack puts it, "The fall in housing starts comes at a time when the primary focus is on increasing levels of house building as a means of combating affordability problems and helping those priced out of the market."
He adds that the key to growing housing output is getting more land into the system. However, there is limited understanding within Government as to how land for new housing feeds into the market and how this can encourage greater supply.
Aside from the change in demand, the report highlights three factors that will influence the volumes of homes being developed over the next few years - namely, how fast developers can react to the changing nature of demand; how landowners view the downward pressure on land values and how developers are able to cope with new build planning policy as set out by local and national Government.
All things being equal, the weakening in end sale prices is bound to put a downward pressure on land values. Lower land values will support scheme viability but the land market is very similar to the housing market with lots of owners sitting on land they dont need to sell.
Donnell adds, "Left to its own devices the market may sort itself out in two or three years but a swift response by local planning authorities could make an important difference.
"How developers fare will largely depend upon whether their management teams foresaw the current problems and had a fall back strategy in place. Investors took some developers down something of a blind alley which they now need to reverse out of."
10 March 2008 © Moneyextra.com
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