Trends

FEWER LONDON HOUSE STARTS

In the quarter ending September 2018, the number of private house starts in the capital fell by around 50% – 3,655 compared to 7,153 in the previous quarter.

The steep slowdown was revealed by researchers Molior and the starts total was the lowest since 2012. 

Private house starts account for about three-quarters of the total number of house starts with housing associations and councils accounting for the rest.

It is expected that next year City Hall will set a house start target of 65,000 units per year for the next 10 years. However, according to Molior the private sector started just 23,507 units in the 4 quarters to September 2018.

Molior attributed the low number of starts to uncertainty brought about by the EU Referendum and the subsequent General Election.   

The fact of lower house starts points to falling confidence among private developers. The word on the street is that the margins of developers have been eaten away in recent years as London prices have at best flat-lined.

In many cases it is simply not sufficiently profitable for developers to build new homes.

Higher stamp duty, stricter borrowing requirements and a harsher tax regime for BTL landlords have all reduced demand. Foreign buyers have exited the London market in large numbers.

In the short term, the slowdown signals greater falls in London house prices, rippling out to the South East and beyond. 

With their ears close to the ground, developers benefit from early notice of a fall-off in prices and are minimising their risk by building fewer units which they may be forced to discount to unprofitable levels in order to achieve sales.

On the other hand, the low number of starts is a sign of future shortages and lack of supply is expected to stop prices from going too far into negative territory.

In the longer term, two or three years from now, the shortage could be fuel for the next property upturn leading to a boom before an inevitable bust, as last occurred in 2008. 

For those that subscribe to the highly persuasive 18 year property cycle, we are in London very much at the mid-cycle wobble point – the stage  before the period of robust growth leading to a crash, which seems likely to be in 2025 to 2027. 

London always leads the way and the fact that prices in most parts of the country are in growth mode needs to be viewed with extreme caution.

Those areas currently enjoying robust growth will face their mid cycle wobble just like London at some point.

The difficulty for property watchers is to work out when the mid-cycle wobble is over or is about to end. One thing however seems clear at the present time – the wobble which is currently affecting London is not yet in full swing.

Close scrutiny of various stats, the pronouncements of numerous experts and persuasive historical lessons suggest that London prices will continue their fall for the next year or two – but at a modest level – probably no more than 5% in total. 

Given the ripple effect, investors buying in parts of the UK where house prices are still rising need to proceed with full due diligence.

In some regions of the country, prices may have already reached their peak and the mid-cycle wobble which was first seen in London may be on its way north.

Buyers in places like Birmingham, Manchester and Liverpool…beware!

The steep fall in new homes being started in London may well be an early warning sign that the mid cycle wobble is on its way northwards, at some speed.

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Dalton Barrett
Rebel Property Coach

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