AM45064

AMA RESEARCH Market Report : UK Housebuilders Market : August 2004

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Brief Description

AMA Research has published the eighth edition of the “Housebuilding Market – UK 2004” report, which focuses on the key organisations within the housebuilding market and provides a comprehensive review of the major aspects of the new housebuilding sector. In particular, changes driven by Government and the ‘Barker Report’ are reviewed in terms of housing output, affordable homes and the growing emphasis on OSM (off-site manufacturing).

Key areas in the report: -

Review of Housebuilders – analysis of major housebuilders, volumes, market shares, positioning, key housebuilding indicators since 1997, recent corporate activity, forecasts of future trends.

Detailed assessment of the housebuilding market – housing starts & completions, analysis by sector (private/public), house prices, house-moving market, brownfield / greenfield developments, housebuilders’ land banks, forecasts of future trends.

Prefabricated Building Products/Off-Site Manufacture – overview of product ranges (steel / timber frame), use of OSM in public & private sector housing, recent developments, forecasts of future trends.

Review of Buying & Specification Process – overview of factors influencing decision makers in the specification and buying processes, changing legislation, sustainability etc.

Executive Summary

Private sector new housebuilding levels have remained relatively low against the background of rising house prices, low interest rates and rising earnings. Completion levels have increased marginally to 173,500 in 2003, but with no indications of any significant upturn in output.

Levels of housing starts were maintained during 2003 to reach 175,000 and latest statistics show that during the first quarter of 2004, starts were up 4% on the same period in 2003 and completions remained level. Although the UK has experienced relatively low interest rates, a boom in house prices and increasing house moving levels, the rate of growth in the number of new housing starts still remains relatively slow, which many housebuilders are attributing to an increasingly onerous planning approvals procedure.

In 2003 new housing was one of the leading sectors within the UK construction industry, contributing just over 31% in terms of output value. Output in the overall housing sector now stands at over £15 billion, compared with £12 billion during 2002, reflecting the general buoyancy of the market during the year. Of new housing work, private sector output showed increases during 2003 of 27%, with public sector housing also rising but at a lower rate of 17%.

Despite initial reservations by the housebuilding industry at the beginning of 2003, it was a relatively healthy year for house prices and the housebuilding sector in general, characterised by housing growth in the regions away from the South East. The housing market remained strong for most of the year in Scotland, Wales and the North of England, but relatively weak in central London and the Home Counties. The market for higher priced properties, ie. above £400,000 in the South East and above £250,000 elsewhere in the Country remained slower than during 2002. The interest rate rise in November 2003 to 3.75% had no discernible effect on housing demand and by the end of the year house prices had risen by 18% on the previous year.

Rapid increases in house prices over the last few years have culminated in prices rising to around £186,000 in 2003. The low interest rates seen over the past few years in the UK have also boosted activity in the buy-to-let market, where homeowners obtain another mortgage to purchase a second property.

Funding allocated by the Government in its Sustainable Communities Plan of around £5 billion has been aimed at the provision of affordable housing in four key growth areas of the South East. This funding includes £1 billion for key worker housing, over the three years to 2005-06 - double the level in 1997. The government has predicted a requirement to build an estimated 200,000 homes in London and the South East by 2016, to avoid a future housing shortage, which this sustainable communities plan will help to fund.

The chronic housing shortage also led to the Government-commissioned Barker Report, one of the most significant to affect the housing market in recent years. The Report, published in March 2004 aimed to examine the issues affecting housing supply in the UK, and concluded that in order to deliver long-term stability and slow house-price inflation, a substantial increase in housing supply of between 70,000 and 120,000 extra homes per year would be required. The Report also proposed a development gains tax on the appreciation in land value once planning has been secured and an Imposition of VAT on new housing. However, before any recommendations put forward in the Review become law, the Government needs to consider these proposals on both a local and national level.

The Barker Review also highlighted problems with regional and local planning policy, and stressed the need for planning authorities to allocate more land for development to redress the balance of homes built in certain areas. Since the introduction of PPG3 in 2000, which requires 60% of new housing to be situated on brown-field sites by 2008, the development process has become more complex. Development now involves longer timescales and greater investment of capital to address some of the problems posed by building on previously developed land. In 2003, around 66% of new housing was built on previously developed land, a figure which has been increasing over the last 10 years, with the most noticeable increases seen in 2002 and 2003 following the publication of PPG3.

Large-scale purchase of private residential gardens for ‘back-land’ development is now also becoming prevalent in the South East since the Government classified such land as being ‘previously developed’ and a viable alternative to green-field development. In densely populated towns and cities, this option is now often favoured by local authorities to ease housing land shortages, especially in the South East.

The volatile nature of the housing market in the UK has led many private housebuilders to take a cautious output approach and increase the size of their land banks to avoid any difficulties should a downturn in the housing market occur. The shortage of land supply, especially in the South East, has put pressure upon both large and small housebuilders, with national companies competing to purchase much smaller sites than they would have considered in the past. In 2003 a survey conducted by the Campaign to Protect Rural England (CPRE) revealed that the leading housebuilders in the UK have enough land with at least outline planning to build 278,866 homes.

In recent years the new housebuilding market has changed considerably with the number of housebuilders greatly reduced due to consolidation witnessed within the market. There are around 20 quoted housebuilders in the UK with a market capitalisation of between £20 million and £1.5 billion. The largest player by volume is Barratt Developments with 7.8% of the market, closely followed by George Wimpey and Persimmon with 7.6% and 7.2% respectively. These three firms continue to dominate in terms of unit completions and together accounted for an estimated 22% of the market during 2003.

Taylor Woodrow has continued to prove itself a key player in the housebuilding market with the acquisitions of Bryant Homes for £540m in 2001 and Wilson Connolly for £499m in October 2003 – the largest corporate acquisition in the housebuilding market during the year. Taylor Woodrow hopes that the acquisition of Wilson Connolly will bolster its UK completions record and that its combined UK housebuilding businesses will deliver more than 10,000 homes during 2004.

Off-site manufacture (OSM) of housebuilding components currently has the capacity to produce around 30,000 homes a year, far short of the figure needed to meet official housing projections. As such, the Government is promoting pre-fabrication and off-site manufacturing techniques, looking to methods such as steel and timber frame and modular construction to help solve the housing shortfall. Off-site construction currently accounts for just 3% of housebuilding, and the House Builders Federation is calling for government subsidies to encourage housebuilders to adopt off-site manufacturing methods and to justify the extra costs involved in pre-fabrication. Subsequently, the Government has committed to providing 4,000 off-site homes for the social housing sector in 2003/04 with an investment of £250m, with further investment likely in 2004/5.

It seems likely that offsite manufacturing techniques for housing will be largely limited to the public sector and reduced times on site will make it easier for developers of social housing schemes to finish and hand over complete schemes earlier than if traditional methods are used. Whilst several of the UK’s national housebuilders have begun to experiment with off-site manufacturing techniques, few, as yet, have adopted them for volume production, thereby not producing the economies of scale to justify the extra costs involved in OSM.

It is widely believed that the key driver of housing market activity over the next couple of year will be the pace and level of interest rate rises and the effect this has on consumer confidence. Going into the second half of 2004 and early 2005, further interest rate rises are expected to see levels of around 5.5% or more, which will further moderate house price inflation and see a continued slowdown in the housing market. The anticipated housing market ‘crash’, expected by many has now been replaced by more sustainable growth forecasts in the medium term. Recent forecasts by Industry experts indicate house price growth slowing to between 4-9% for 2004, with the Halifax predicting around 8%.

Affordability pressures as interest rates rise and income growth slows may result in slower growth in the mainstream housing markets where consumers are more reliant on mortgage lending. It is anticipated that prospects in the prime and retirement housing markets may improve as affordability issues related to interest rate rises is less crucial.

On a regional basis, it is anticipated that the North of England and Wales will continue to outperform the rest of the Country over the next 18 months, resulting in a further narrowing of the north/south divide. There is expected to be less regional variation in price growth during 2004, although northern regions are still expected to out-perform those in the south. London is expected to see the lowest growth rates where affordability is already stretched. Supply shortages, as highlighted by the Barker Report, will also underpin growth in house prices in the South East over the next couple of years.

Companies Mentioned

Persimmon, George Wimpey, Barratt Developments, Beazer, Bryant, Taylor Woodrow, Wilson Connolly, Wainhomes, Alfred McAlpine Homes, Redrow, Galliford Try, Gerald Wood Homes, Knapp Group, Kier, Allison Homes, Bellway, Wilson Bowden, Westbury, Bovis Homes, Berkeley, Countryside Properties, Miller, J S Bloor, McCarthy & Stone, Crest Nicholson, Fairclough, John Laing, Prowting, Fairview, Ideal Homes, Tilbury Douglas, Torwood, Homes, John Mowlem Homes, Charles Church, Tarmac, Greenham, Trading, Greenham Construction, Prestoplan Purpose Built Ltd, Clarke Homes, John Maunders, Prowting plc, Costain Homes, P&O Group, Britannia Homes, Manor, Kingdom Developments, Thirlstone Group Ltd, Miller, Group Ltd, Cussins Property, Lynch Homes, Crest Nicholson plc, Fairclough Homes Ltd, AMEC plc, Centex Development Company UK Ltd, Centex, Corporation USA, General London Constructors Ltd, Hillsdown Holdings, Fairview HoldingsProwting, plc, Westbury plc, Octagon Developments Ltd, Beechcroft plc, Domus, Prowting, John Laing, Ben Bailey plc, A & J Stephen (Holdings) Ltd, Bett Brothers plc, Bewley Homes, Bowey Homes Ltd, Cala Group Ltd, Chartdale Ltd, Croudace Ltd, David McLean Homes Ltd, David Payne Homes Ltd, Elite Homes Group, Furlong, Homes Ltd, Galliford Try plc, Stamford Homes, Midas Homes, Knapp Group, Gerald Wood Homes, Goldcrest Homes plc, Haslam Homes Ltd, Henry Boot Homes, Hopkins Homes Ltd, Kendrick Homes Ltd, Kier Group plc, Swallow Homes Ltd, Linden Group, Linden Holding, MacTaggart & Mickel, M J Gleeson Group plc, Morgan Sindall plc, Lovell Partnership, Wheatley Construction, Morris Group Ltd, Allen plc, AWG plc, Norfolk Homes, Dacerell Ltd, Pelham Homes Ltd, Arrow, Property Investments Ltd, Rialto Homes plc, Robert Hitchins Ltd, Bay Holdings Ltd, Scotia Homes, Sheperd Homes Ltd, Swan Hill Homes, Spread Trustee Company Ltd, Wates Homes Ltd, Wates Group, Weaver Homes Ltd, Yuill Group Ltd, Gladedale.

List of Contents

1	INTRODUCTION
2	SUMMARY
3	ECONOMIC ENVIRONMENT
3.1	GDP
3.2	INFLATION & INTEREST RATES
3.3	UNEMPLOYMENT
3.4	HOUSEHOLD CONSUMPTION
3.5	HOUSING & CONSTRUCTION
3.6	STERLING
3.7	POPULATION PROFILE
3.8	CONCLUSIONS
4	CONSTRUCTION MARKET OVERVIEW
4.1	THE CONSTRUCTION MARKET
4.1.1	Value of Output - Construction New Work
4.1.2	Value of New Orders
4.2	HOUSEBUILDING MARKET -OVERVIEW
4.2.1	Overall Market Performance
4.2.2	Current Market Characteristics
5	THE NEW HOUSING MARKET
5.1	DEFINITION
5.2	HOUSING STARTS
5.2.1	Overall Figures
5.2.2	The Sustainable Communities Plan
5.2.3	Barker Review of Housing Supply
5.2.4	Regional Housebuilding Starts
5.2.5	Problems of Supply - The Planning System
5.3	HOUSING COMPLETIONS
5.3.1	Overall Figures
5.3.2	Registered Social Landlords (RSLs)
5.4	VALUE OF HOUSEBUILDING
5.5	HOUSE PRICES
5.5.1	Average Price of New Dwellings
5.5.2	Regional Variations
5.5.3	House Prices - All Dwellings
5.6	HOUSE-MOVING MARKET
5.6.1	Residential Property Transactions
5.6.2	Mortgages
5.7	HOUSING STOCK
5.7.1	Overall Housing Stock
5.7.2	Regional Variations in Dwelling Stock
5.7.3	Dwelling Stock By Age
5.8	HOUSING LAND
5.8.1	Brown-field versus Green-field Land
5.8.2	Land-banks
5.8.3	Housing Land Prices
5.9	HOUSEHOLD TENURE
6	THE HOUSEBUILDERS
6.1	DEFINITIONS
6.1.1	National Housebuilders
6.1.2	Larger Regional Housebuilders
6.1.3	Smaller Regional And Local Housebuilders
6.2	OVERALL MARKET
6.3	HOUSEBUILDERS MARKET SHARE
6.4	NATIONAL HOUSEBUILDERS COMPANY PROFILES
6.4.1	Key Company Indicators
6.4.2	Five Year Performance Record
6.4.3	Corporate Activity
6.4.4	Relationship with Commercial Developers
6.4.5	Outlook for Corporate Activity
6.5	REGIONAL & LOCAL HOUSEBUILDERS
6.5.1	Companies
6.5.2	Recent Corporate Activity
7	PREFABRICATED & FACTORY FINISHED PRODUCTS
7.1	TYPES OF PREFABRICATED BUILDING CONSTRUCTION
7.2	APPLICATION OF PREFABRICATION TO THE HOUSING INDUSTRY
7.2.1	Advantages/Disadvantages of OSM
7.2.2	Use of OSM in the Social Housing Sector
7.2.3	Use of OSM in Private Sector Housing
7.2.4	OSM Activity by Housebuilders/Developers
7.3	PRODUCT RANGE
7.3.1	Timber Frames
7.3.2	Panelised Systems
7.3.3	Bathroom/Kitchen Pods
7.3.4	OSM Suppliers
7.4	SHORTAGE OF SKILLED LABOUR
7.5	THE FUTURE OF OSM
8	HOUSEBUILDERS BUYING AND SPECIFICATION
8.1	OVERVIEW OF THE BUYING AND SPECIFICATION
8.2	PRODUCT SPECIFICATION
8.3	SOURCE OF PURCHASE
8.3.1	Direct Supply from Manufacturer
8.3.2	Builders and Plumbers Merchants
8.3.3	Other Sources of Supply
9	Future Prospects

Tables and Charts

Text © 2004 AMA Research

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Last updated by Amanda Porteous 2004