Friday property news update - 30 April
House prices surge, the move to hybrid working and developers face new challenges
6 minutes to read
The supply crunch
Annual house price growth rebounded to 7.1% in April, from 5.7% in March, according to new Nationwide data published this morning. Prices were up 2.1% month-on-month, the biggest monthly rise since February 2004.
The growth in prices can be attributed in-part to a shortage of supply. The number of properties listed for sale in England and Wales last month fell by a quarter compared to the same period 12 months ago, according to new analysis from Tom Bill. The shortage is particularly acute for houses, for which listings were 33% lower over the 12-month period. The number of flats was 7% higher.
Nationwide chief economist Robert Gardner says stock constraints leave the possibility for further price gains over the coming months and even suggests the rate of growth will reach double digits in June.
Our analysis suggests this rise is likely to rebalance over the coming months, with the number of new properties coming to the market beginning to rise – albeit slowly.
Interestingly, an accompanying survey conducted by Nationwide said that, of those that were either moving home or considering a move at the end of April, three quarters said this would have been the case even if the stamp duty holiday had not been extended.
Housebuilding challenges
A buoyant housing market is good for the housebuilders, but they are now dealing with challenges on a number of fronts.
Land supply is a growing issue, as outlined in our new survey of nearly 50 volume and SME developers, earlier this week. The costs of supplies are also rising significantly. The Construction Products Association tells the FT that timber prices have risen by more than 80% in the past six months, while copper and steel have jumped by 40%. Copper has just topped $10,000 a metric ton for the first time since 2011.
Our survey respondents cited planning delays as the second most significant barrier to housing delivery. Virtual planning meetings are set to cease after May 6, after members of the planning industry lost a High Court case against the government. Our survey suggests reverting to in-person meetings is likely to exacerbate delays in the short term.
Meanwhile, the government has launched a consultation on the creation of a new residential developer tax aimed at collecting at least £2 billion to help contribute towards the cost of cladding remediation work. According to the Home Builders Federation, the tax will apply to developers’ group profits whether individual dwellings are sold or chunks of sites are sold in bulk - that means Build to Rent developments will also be within the scope of the proposals.
The transformation of the office, continued....
The UK government has formed an advisory group from business associations, charities and trade unions to help draw up new employment advice for flexible working, according to the FT. Though the immediate need is to devise short term guidance to help companies reopen and return safely, the report suggests officials also want to consider the impact of the pandemic on long term policymaking, including whether the existing statutory right to request flexible working should be improved.
Our (Y)OUR SPACE survey of 400 global corporates suggests the market is outpacing policymaking on this issue. Implementing methods of hybrid working is now central to business planning, which is being fed into real estate decision making. Almost 40% of our respondents, for example, rate the likelihood of relocating their HQ within the next three years as either ‘definite’, ‘very likely’ or ‘fairly likely’.
This is in large part about both new styles of working and costs. Some 59% of respondents see the opportunity for cost savings to be a noteworthy driver of HQ moves and 54% see relocation as a potential outcome of new working styles and an associated change in the quantum and quality of space their business requires.
As we discussed on Wednesday, the office is progressing towards higher quality, more amenity rich space, which is less about the individual and much more collective endeavour. Fewer people in the office means the same envelope of space can be utilised more efficiently by a great number of people, and it's clear this is how global business is thinking - over the next three years, almost half expect the quality of their office space to further increase and 55% believe that there will be an increase in the proportion of collaborative space found within their portfolios.
The uneven recovery
US economic growth accelerated in the first quarter, expanding 1.6% compared to the previous quarter. The economy expanded 6.4% on an annual basis, driven by consumers spending stimulus cheques on cars and other goods. Output is now just 0.9% shy of its level at the end of 2019.
The New York Times has interesting analysis of the uneven recovery. As we've mentioned in previous notes, the global nature of the pandemic means economic themes are mirrored elsewhere, making economic news in nations leading the recovery particularly noteworthy.
Residential investment is now 14.4% above its pre-pandemic trend, representing $90 billion a year in extra activity. That, according to the NYT, was constrained by shortages of homes to sell (see also Tom's piece linked above), and lumber and other materials used to make them. Data on housing starts suggest investment is likely to surge further in coming months.
Meanwhile, spending on transportation services remains 23% below its pre-pandemic trend, recreation services are down by 31%, and restaurants and hotels by 19%.
Those three sectors represent $430 billion in “missing” economic activity, according to the NYT report — largely equivalent to the combined shift of economic activity toward durable goods and residential real estate.
The journey back to normality
Landlords led by Landsec, British Land and the British Property Federation have proposed normal retail and hospitality market rent collection should resume from the end of June, when the current ban on evictions is set to end.
The group suggests ring fencing arrears during the period of trading restrictions from March 2020-May 2021, and landlords and their customers will have until December 2021 to agree concessions where appropriate. See the write up in the Times.
Meanwhile, more than 14% of shops are empty, up from 13.7% the start of year, according new figures from the British Retail Consortium
In other news...
UK household's net worth grew by 9.1%, or nearly £1 trillion, to £11.4 trillion between 2019 and 2020, according to the ONS. A rise in the value of property in 2020 increased growth of the household sector’s net worth by 3.8%, and was largely driven by increases in UK average house prices.
Plus, China's recovery moderates, Amazon sales soar, confidence among UK companies hits a two-year high, NatWest to move headquarters if Scotland votes for independence, and finally, how the middle class became downwardly mobile.