Housing developers with planning consent are being encouraged to commence work on their sites to be in ‘prime position’ to meet rising buyer demand.
Research from Savills has revealed that demand for new build homes remains positive with the start of 2024 signalling a more upbeat sales market as viewings and reservations picked up relative to last year. This aligns with the National House Building Council’s (NHBC) sentiment survey which showed a step change in site visitors across the country, reaching positive territory in March for the first time since the ‘mini-budget’ of September 2022.
Savills regional new homes sales teams have also registered an increase in demand, with reservations +19% higher in January and February than the same period in 2023. Sales rates amongst major housebuilders has also improved to an average of 0.77 per outlet per week in March, up from 0.59 at the start of the year.
It has been suggested that while buyers remain sensitive to mortgage rates and headline pricing, reliance on sales incentives amongst developers appears to be reducing, although agents note their ability to clinch deals where margins are tight.
According to Savills, this flurry of activity at the start of the year demonstrates the depth of pent up buyer demand which could be released when the cost of debt eases.
Helen Asteris, head of Savills south coast residential development sales team, says: “Affordability is by far the biggest factor in the new homes market – particularly for first time buyers. Accordingly, we expect the pace and scale of interest rate cuts to have a more significant impact on the market than the timing or outcome of the general election, not least because of the short odds on a change in government.
“Headline inflation’s fall to 2.3% in the year to April indicates two or three bank base rate cuts, this year. That is likely to mean mortgage markets remain relatively stable in the short term, with the prospect of lower borrowing costs as the year progresses. And with a shorter-than-expected run in to the general election, there is more opportunity for the buyer demand we are experiencing to continue to gain traction over the autumn, with most of the uncertainty behind us.”
Earlier this month, Savills revised their mainstream house price forecasts for 2024-2028, with the longer term outlook for the market expecting increasing activity and capacity for price growth from 2025, helped by a stronger economic performance and a steady reduction in the bank base rate.
However with housing delivery in England forecast to fall to its lowest level for a decade, with starts on all homes (including affordable and rental homes) down -24%, while private units are down -27% in the year to Q1 2024 compared to 2023 according to NHBC data, questions are being asked as to whether the new homes market will be ready for the recovery.
Helen adds: “All sizes of developers, from the top 10 to the smaller players have seen a similar reduction in volume of plots starting on site. While completions of new homes across England in 2023/4 looks likely to only be down only slightly on the previous two years, the delayed impact of falling starts points towards an increasing shortage of new build homes in the near future.
“The metrics point toward distinct areas where there will be a shortage of homes, particularly houses, and a lack of competition in a couple of years’ time, just as the housing market is returning to growth. And this is why we are encouraging developers with planning consent to push on with their sites in order to be in prime position to meet rising buyer demand who will be eager to transact, as mortgage rates reduce to a more affordable threshold.”
The drop in development activity is placing increasing pressure on markets that have already failed to meet housing need. The map above highlights local authorities across England where completions of new homes in the year to Q1 2024 fell short of housing need (as defined by the standard method) and where number of planning consents (future pipeline) has also fallen. Clusters are evident in London, parts of the South East and the North. Data from NHBC confirm that shrinking numbers of planning consents are translating into fewer starts on site, with places such as Brighton and Hove, Medway and Kent, Surrey, Greater Manchester and Lincolnshire all seeing a reduction of over 40%
