UK GDP 2018
ONS estimated figure for year ended 30 June 2018
— Real and forecast GDP growth %
Consumer confidence and the health of the UK economy are fundamental to the UK housing market. The UK economy continued to grow in the 12 months to 30 June 2018, albeit more slowly than previously predicted. The EU referendum result in June 2016 led to some initial uncertainty for the UK economy but it has proven more resilient than forecast following the referendum. The latest estimates show that GDP has increased by 1.4% in the year to 2018, slightly below the 1.8% growth to June 2017. Unemployment rates and interest rates remain historically low, which support consumer sentiment. However, risks to demand remain within the UK economy as uncertainties resulting from the ongoing negotiations regarding the UK exit from the EU move forward.
Government policy and planning
Planning approvals for the year were 5% above the 10-year average. However the process of securing implementable detailed planning consent remains challenging. While the planning system remains cumbersome and bureaucratic, there have been some improvements in recent years. However, further change is needed and the Government's White Paper on planning has been broadly welcomed by the industry, as it seeks to address the problem of planning delays, including under-resourced planning authorities. The Government has announced planning reforms to improve land availability for new housing and to maximise the potential of underused land in towns and cities. This should support progress towards achieving the Government's significant housebuilding targets in the future. Local planning authorities are required to put in place five-year plans to meet their housing needs, which in theory should ensure a consistent supply of consented land to enable the housebuilding industry to commit capital to long term projects.
All political parties have recognised the need for additional housing, not just because of the chronic need for new homes but also because of the important role that housebuilding plays in the wider economy. Recent policy has focused on stimulating demand for home ownership through programmes such as Help to Buy. Commitment to the Help to Buy programme has been made to 2021 and the scheme was recently bolstered by an additional £10bn of funding, although we still await an update from the Government on the future of the Help to Buy scheme in the period after 2021. Additionally, the Government has committed a further £2bn of funding to deliver affordable homes and the National Planning Policy Framework is ensuring that all local authorities have a consistently calculated five-year supply of land for new homes.
Following the tragic events at Grenfell Tower, a wide-ranging inquiry has commenced to establish the causes and examine the responses to this disaster. Whilst focused on high-rise residential, the Government has required all housebuilders and property owners to review the fire strategy for all buildings built or refurbished since 2005.
Corporate and Social Responsibility
Planning approvals above 10-year average by
UK House price index
— Outer South East1
— Outer Metropolitan2
1 Buckinghamshire, Hampshire, Oxfordshire and Sussex
2 Essex, Hertfordshire and Surrey
Supply and demand imbalance
There continues to be a fundamental demand and supply imbalance in new build housing. The Government's Housing White Paper published early last year aims to deliver increased numbers of homes more quickly to meet the demands of local communities, and in the 2017 Autumn Budget the Government announced plans to increase the annual volume of new homes built to 300,000 per annum by 2022.
Demand for new build housing has remained strong supported by healthy employment trends, a competitive mortgage market and the Government's Help to Buy scheme. Increased demand has resulted in house prices rising at a rate above that of retail price inflation. The average UK house price was £215k in June 2018, a growth of 2.2% on the previous year. Our average selling price was £283k (excluding joint ventures) and £293k (including joint ventures) in the year to 30 June 2018, as we have a focus on affordability and the first-time buyer, first-time mover market.
The most recent available data shows a small decrease of 2.5% in new build completions, with 153,000 new properties completed in the UK, for the year to 30 June 2018. This remains well below the level required to address the UK's supply and demand imbalance.
2018 New home completions
Mortgage affordability and availability
Mortgage availability and affordability in the UK is a key dynamic for the housebuilding sector and our customers. Despite the recent modest increases in the Bank of England base rate to 0.75%, the first increases in the last decade, borrowing costs remain at a historically low level. Commentary from the Bank of England after the November 2017 base rate increase indicated its expectation of only modest further increases in the coming years, so we do not currently envisage any material change in the overall conditions in the mortgage market in the near term.
The number of new mortgages decreased slightly in the year to 30 June 2018 to 780,000 new loans for home purchase (2017: 796,000) primarily due to continued weakness in buy-to-let completions. In contrast, first-time buyer completions have increased. The Help to Buy scheme continues to be important for new housebuilding and has supported almost 170,000 property completions since its launch in April 2013 to the end of December 2017. The majority of these (81%) were to first-time buyers.
Mortgage availability remains strong, with mortgage lenders keen to increase their market share and the mortgage market remains competitive. However, the mortgage market could be restricted by changes in Government policy, particularly changes to the Help to Buy scheme.
New mortgages in 2018
Source: Bank of England
Construction costs in the UK have increased by 3.9% in the year to March 2018 (2017: 5.0%) due to continued pressure on resources to deliver the higher level of homebuilding, the devaluation of Sterling and labour costs rising due to an acute skilled labour shortage.
The shortage of skilled labour is, along with the inadequate planning system and financial constraints, the greatest limitation to increasing the UK housing supply. The housebuilding industry has a shortage of skilled and experienced labour at all levels. The skills gap has largely been filled by overseas workers from the European Union ("EU") and beyond, who now make up a significant proportion of the workforce. Brexit negotiations have led to uncertainty over the security of the EU workforce, not just from potential future employment restrictions but also from possible economic migration caused by Sterling devaluation.
Corporate and Social Responsibility
Construction costs increase
— All-in TPI
— General Building Cost index
— Private Housing Construction Price index
Source: BCIS (June 2013=100)