Table of Contents

Executive Summary

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TABLE OF CONTENTS

1. INTRODUCTION 5

2. SUMMARY 6

3. ECONOMIC ENVIRONMENT 9

3.1 INTEREST RATES 9

3.2 INFLATION 10

3.3 PUBLIC SPENDING, GDP AND UNEMPLOYMENT 10

4 THE HOUSEBUILDING MARKET 12

4.1 DEFINITION 12

4.2 CONSTRUCTION MARKET 12

4.3 HOUSEBUILDING MARKET SIZE 16

4.4 HOUSE PRICES 26

4.5 NEW BUILD MIX 28

4.6 MORTGAGES 31

4.7 HOUSING STOCK 34

4.8 PRODUCT COSTS BREAKDOWN 43

5. THE HOUSEBUILDERS 50

5.1 DEFINITION 50

5.2 MIX OF HOUSEBUILDER GROUPS 51

5.3 NATIONAL HOUSEBUILDERS 52

5.4 REGIONAL COMPANIES 67

5.5 LOCAL COMPANIES 71

6. THE BUYING & SPECIFICATION PROCESS 72

6.1 RESEARCH OVERVIEW 72

6.2 LEVELS OF DECISION MAKING 73

6.3 IN-HOUSE SPECIFICATION 74

6.4 MAIN SPECIFICATION INFLUENCES 76

6.5 KEY INFLUENCES ON BRAND SELECTION INFLUENCE 78

6.6 KEY TECHNICAL SPECIFICATION CRITERIA 80

6.7 MAIN PRODUCT BRAND SELECTION CRITERIA 82

6.8 SOURCE OF SUPPLY 86

6.9 NEW HOMES WITH ADVANCED FEATURES 92

7. KEY MARKET INFLUENCES 95

7.1 INTEREST RATES AND INFLATION LEVELS 95

7.2 PDI AND SAVINGS RATIOS 96

7.3 POPULATION MIX 98

TABLES AND CHARTS

CHART 1: HOUSEBUILDING COMPLETIONS 1985-97 ('000S)

CHART 2: VOLUME OF CONSTRUCTION OUTPUT GB - 1985-1996 (1990=100)

TABLE 3: VALUE OF CONSTRUCTION ORDERS FOR NEW WORK IN GREAT BRITAIN 1985-1996 (£BN)

TABLE 4: HOUSEBUILDING COMPLETIONS IN GREAT BRITAIN (000') 1980-1997

CHART 5: MIX OF HOUSEHOLDS BY SECTOR percent

TABLE 6: UK HOUSEBUILDING STARTS (000'S DWELLINGS) 1986-1997

TABLE 7: HOUSEBUILDING STARTS BY REGION

TABLE 8: VALUE OF HOUSEBUILDING OUTPUT AT CURRENT PRICES 1985-1999 £M

TABLE 9: AVERAGE NEW DWELLING PRICES PER REGION (£'000)

TABLE 10: MIX OF HOUSES/FLATS BY NUMBER OF BEDROOMS - 1976-1995 ENGLAND & WALES

TABLE 11: MIX OF HOUSES & FLATS BY NUMBER OF BEDROOMS BY TYPE OF BUILDER - 1986, 1991 & 1995 - ENGLAND & WALES

TABLE 12: BUILDING SOCIETY & BANKS VOLUME OF MORTGAGES UK 1986-1996 (NEW DWELLINGS ONLY)

TABLE 13: MORTGAGE ADVANCES BY BUILDING SOCIETIES BANKS/HOUSEBUILDING OUTPUT FOR PRIVATE SECTOR NEW HOUSING (£M)

TABLE 14: STOCK OF BUILDINGS IN GREAT BRITAIN - 1971-1996

TABLE 15: DEMOLITION / CLOSURE OF DWELLINGS IN GREAT BRITAIN 1979-1995

TABLE 16: AVERAGE NEW DWELLING LAND PRICES PER REGION (£'000 PER HECTARE)

TABLE 17: HOUSEHOLD TENURE DISTRIBUTION 1983-95

TABLE 18: AVERAGE HOUSEHOLD SIZE FOR GREAT BRITAIN 1971-1995

CHART 19: MIX OF STOCK OF DWELLINGS BY AGE - ENGLAND

TABLE 20: PROPORTION OF TOTAL COST - percent MIX

TABLE 21: COST ANALYSIS OF SUBCONTRACTED AND DIRECT WORK

CHART 22: COST BREAKDOWN BY LABOUR AND MATERIAL ( percent OF TOTAL NON-SUBCONTRACTED HOUSEBUILD)

TABLE 23: COST MIX BY TYPE OF WORK - AVERAGE 3 BEDROOMED HOUSE

TABLE 24: COST ANALYSIS PER TYPE OF WORK

CHART 25: MIX OF NATIONAL, REGIONAL & LOCAL HOUSEBUILDERS 1991 & 1996

TABLE 26: MARKET SHARES OF THE LEADING HOUSEBUILDERS IN THE UK 1996

TABLE 27: LEVEL OF DECISION MAKING

TABLE 28: THE MAJOR INFLUENCERS ON THE HOUSEBUILDERS BUYING PROCESS

TABLE 29: MAJOR SPECIFICATION INFLUENCES

TABLE 30: MAJOR INFLUENCES ON BRAND SELECTION

TABLE 31: MAJOR TECHNICAL SPECIFICATION CRITERIA

TABLE 32: MAJOR PRODUCT BRAND SELECTION CRITERIA

TABLE 33: SPECIFICATION AND PURCHASE CHAIN

TABLE 34: MAJOR SOURCES OF MATERIAL SUPPLY TO HOUSEBUILDERS

TABLE 35: percentAGE OF NEW HOMES WITH PRODUCT FEATURES

CHART 36: INTEREST RATES AND INFLATION (RPI) FROM 1990-2000

CHART 37: PDI & SAVINGS RATIO

TABLE 38: DISTRIBUTION OF UK RESIDENT POPULATION JUNE 1995

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EXECUTIVE SUMMARY

After a difficult period on the early 1990s, the new housing market is finally experiencing a period of stronger and more sustained growth. Between 1989-92, housing completions fell by over 30 percent, before some recovery occurred in the 1993-95 period.

While 1996 was a difficult year for the industry, the level of housing starts increased rapidly in the last few months of 1996 and has continued into 1997, which should feed into higher completion levels in late 1997/1998.

Recovery has been strongest in the private sector over the last 2/3 years, with the recent growth in Housing Association activity levelling off due to restrictions in public funding. Local Authorities have virtually disappeared from the new build sector with activity limited to meeting specialist accommodation requirements only.

Prospects for new housing activity in the longer term appear relatively optimistic. A recent survey has forecast a demand for 4 million new homes over the next 20 years, equivalent to an average annual output of 200,000 dwellings.

In terms of the major housebuilders, there has been some concentration of supply over the past few years. Wimpey have acquired Tarmac's housing interests and are now clear market leaders with around 7 percent. Barratt, Beazer and Persimmon all have significant shares with substantial increases in volumes in recent years.

However, the housebuilding market remains fragmented with the top 20 builders accounting for around less than half of output and the rest of the market supplied by a large number of builders operating on a local scale.

In terms of the buying and specification processes, the larger builders rely heavily on internal influencers in determining specification levels. Some will operate with a group committee to review specification standards, while smaller builders will make more use of external specialist support.

Brand specification is also primarily the responsibility of the builder, though sub-contractors will play an active role in determining the brand, particularly for products such as heating, bathroom/showers, floor and wallcoverings, pipes and fittings etc.

Support from manufacturers is also considered important, particularly when builders are considering specification changes. Housebuilders are generally low risk-takers in terms of product innovation and will rely heavily on trusted manufacturers within established product sectors.

Specification standards, however, are changing. For example, PVCu is rapidly gaining share as a window frame material replacing the traditional dependence on timber, while Building Regulations also have an impact on insulation standards.

Product performance and reliability are key influencing factors influencing choice of supplier, particularly in product sectors considered to be critical in supporting the NHBC 10 year guarantee. Price is also critical and the prolonged recession in the sector has resulted in pressures on prices and margins throughout the supply chain. 1997 has seen some recovery in material costs in some sectors, but this has not been substantial to date, compared with the erosion of prices in real terms over the last 7 years.

The prospects for the new housing sector in real terms are relatively optimistic at present, reflecting rising consumer incomes and housing prices in general which has virtually eliminated the impact of negative equity, allowing more homeowners back into the market. Low interest rates by historical standards are also stimulating the market, with the gradual erosion of MIRAS appearing to have minimal impact on demand.

Providing current house price inflation does not escalate into a boom and there are no substantial increases in interest rates then it is likely that the demand for new housing should experience strong growth within the foreseeable future.

This comprehensive report represents a detailed assessment of the market, reviewing major trends, key factors influencing developments and future prospects for the sector. Analysis is both quantitative and qualitative, based on our substantial experience of the building and home improvement markets.

Text © 1998 AMA Research

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