Government authority to look in greater detail at five areas of housebuilding market
The Competition and Markets Authority (CMA) has announced that it will continue its investigation into the housebuilding industry, focusing on five key areas:
- Estate management charges
- Land banks
- Planning rules
- Competition between builders
- Barriers to entry for new businesses
In February 2023, after a request for an inquiry by Housing Secretary Michael Gove, the CMA asked for comments on its statement of scope, with around 40 businesses responding with their views.
The CMA has indicated that it has not yet decided if it will hold a full investigation into the sector, but will instead consult on proposals to have a full investigation on land banks held by the largest housebuilders, as well as private management of public amenities on new developments. The consultation will close on 18 September.
The Home Builders Federation (HBF) noted the investigation into barriers to entry, remarking: “Over recent decades the industry has become a difficult one for SMEs to thrive in. The complexity and cost of the planning process, its unpredictability and the frequency with which rules are changed to meet political objectives can make planning investment very challenging.”
The HBF also commented on the issue of land banking by large developers.
Like any other business, housebuilders rely on a throughput of materials and components to be able to deliver a finished product.
Home Builders Federation
In the case of development, the most important raw material is land. Many sites are far from being developable and could have years before they receive any kind of planning designation.
Once granted planning consent, developments are generally started and built out swiftly.
The market study report will be published on 27 February 2024.
Asking prices in August in biggest fall for five years
Rightmove have revealed a -1.9% fall in house prices during August, with the average property losing £7,012 in the month to reach a value of £364,895.
The data represents the biggest fall in August since 2018, as sellers lower prices to tempt buyers in a market which sees average house prices still £59,000 (19%) higher than the pre-pandemic market of August 2019.
On average, house prices fall by around -0.9% during August’s traditional summer slowdown.
The number of sales being agreed is 15% lower than August 2019, as higher mortgage rates mean some buyers are putting plans of moving on hold.
In addition, the number of available properties for sale is -10% lower than 2019, with Rightmove encouraging sellers to price correctly in order to prevent delays.
While a 1.9% drop in just one month seems dramatic, it’s in part an expected seasonal drop as sellers coming to market realise that they have to compromise on price due to the traditionally quieter summer holiday period.
Tim Bannister, DIrector of Property Science, Rightmove
Crest Nicholson issues profit warning
Housebuilder Crest Nicholson has sounded a profit warning as it reports that “trading conditions for the housing market have worsened during the summer of this year.”
In a trading update, the developer said that it expected pre-tax profit for the year ending 31 October 2023 to be around £50m; a fall from the £73.7m it forecast when reporting half-year results in June.
Crest also announced plans to move its East Anglia division into its Eastern arm amidst plans to reduce overheads.
However, the firm remained optimistic about the outlook for the business, anticipating a reduction in mortgage rates over the medium term, and highlighting its strong financial position.
Building material prices show “first step towards market normality”
The latest Builders Merchants Building Index (BMBI) has revealed a -3.3% fall in material prices during the second quarter of this year, compared to the first quarter.
However, total sales in the second quarter were 7.6% higher, with the increase due to stronger volumes rather than cost inflation.
John Newcomb, CEO of the Builders Merchants Federation which publishes the index, noted ongoing industry challenges but highlighted the increase in volume sales.
While the BMBI shows total value sales in Q2 2023 were down on the same period last year, one positive we can take from the data is that merchant trading has seen the first signs of volume recovery in the second quarter, with price growth now slowing.
John Newcomb, CEO, Builders Merchants Federation
Hopefully, this is the first step towards market normality down the line.
Housing View 