Slowing growth, paying for heat pumps and the challenges faced by UK housebuilders
Making sense of the latest trends in property and economics from around the globe.
3 minutes to read
Growth slows
Inflation, supply chain problems and staff shortages continue to weigh on UK economic growth.
New data compiled by BDO shows activity in the manufacturing and services sectors fell for a sixth consecutive month during October. That’s the worst reading since March and illustrates why the Bank of England opted to sit on its hands rather than raise interest rates last week.
Official growth figures due for release by the ONS later this week are likely to confirm that that the post-pandemic economic expansion has slowed to a crawl. The Bank of England last week said it no longer expects the economy to reach its pre-pandemic size until Q1 2022.
Build costs
Three in five respondents to our new survey of leading volume and SME house builders report that supply chain problems and rising materials costs were the most significant sources of pressure on their bottom lines during the third quarter.
House price inflation is helping to offset higher costs for the time being, though rising interest rates and an increase in supply is likely to tame house price growth in the months ahead (see below). The latest purchasing managers index, released Friday, showed some early signs that the supply crunch may be beginning to ease, but it’ll still take months to unwind.
Development land with viable permissions is now also in short supply. Knight Frank agents report that potential developments sites are getting held up in planning over environmental impact requirements. Delays are also being exacerbated in some cases where local authorities are under-resourced and/or holding out for policy compliant affordable housing.
Heat pumps
Saturday’s Times reports that banks are “preparing to work with the government in a potential low interest loan scheme” to cover the cost of installing heat pumps and other measures to achieve the transition to net zero.
Comments from Santander chairman William Vereker suggests this is more a pledge to help, rather than any concrete policy development, however it’s clear that the industry is coalescing around the idea that real progress will require more funding than is currently being made available. The £450 million in the net zero strategy will cover about 90,000 of the UK’s 25 million homes.
Our own research suggests homeowners will engage if investing will increase the value of their home. Some 28% of the 900 respondents to our Global Buyer Survey confirmed they would be more likely to invest if environmental regulations were introduced that had a direct impact on a property’s value. Another 22% said cheaper mortgage finance for energy efficient homes would appeal.
House prices
The combined housing stock in the top ten local authorities by broke through the trillion-pound barrier over the course of the pandemic, rising to £1.007 trillion from £978 billion, according to new analysis.
Westminster still has the highest total, at £157.8 billion, though that has fallen by 10% since March 2020. It was one of only three local authorities in England and Wales that saw the value of its housing stock fall over the period, together with Lambeth (-2.2%) and Wandsworth (-1.1%).
There were other interesting changes in the top ten most valuable areas over the course of the pandemic. Cornwall leapfrogged Richmond-Upon-Thames into eighth place while Leeds replaced Ealing at number ten. Both changes can be explained by the growing demand for space and we have previously explored how Yorkshire, in particular, has benefitted from this trend.
For more on how rising interest rates and rising supply are likely to tame house price growth over the coming months, see the full piece.
In other news
Riyadh office rents jump 2.9% due to increased demand for Grade A offices.
Elsewhere - Johnson’s radical planning reform for England hangs in the balance (FT), and finally, Italian Institute for Health drastically reduces Covid-19 death toll (ZeroHedge).
Photo by Phil Hearing on Unsplash