board development session. housing market update sentinel housing selina clark – 14 th october...

Board Development Session

Housing Market Update

Sentinel HousingSelina Clark – 14th October 2013

3© Hometrack 2013

Specialist insight on residential property value, risk and opportunity

Outline

> Market context

> Differential performance in house price ‘recovery’

> Interest rates and low turnover a key support for pricing

> Low housing supply

> High proportion of households priced out of market

> Extra pressure on rental tenures – rental growth overstated

> Working from the national context to tailoring policy to local market dynamics

> Understanding dynamics of local markets – pricing, tenure, demand, availability

> Cost of accessing different tenures for households – impact on demand

4© Hometrack 2013


Market context

© Hometrack 2012

5© Hometrack 2013


Residential capital values across regional cities

100

150

200

250

300

350

4001

99

61

99

71

99

81

99

92

00

02

00

12

00

22

00

32

00

42

00

52

00

62

00

72

00

82

00

92

01

02

01

12

01

22

01

3

Ind

ex

Ju

ly 1

99

6 =

10

0

BristolLeedsLiverpoolLondonManchesterPlymouthSwindon

> The profile of capital growth and recent recovery in residential values by UK city varies widely

> The relative performance reflects local economic and demand side factors.

6© Hometrack 2013


Relative performance over the last 6 years

0%

5%

10%

15%

20%

25%

30%

35%

-20% -10% 0% 10% 20%

% relative to 2007 peak

% r

ise

fro

m 2

00

9 t

rou

gh

> The recovery in residential values by UK city varies widely reflecting local economic and demand side factors.

London (All)

Oxford, Cambridge

Birmingham, ManchesterNewcastle

Edinburgh

Glasgow

Liverpool

Leeds

Bristol

Swindon

Plymouth

Reading

7© Hometrack 2013


Coverage of house price growth across 3000 postcode districts (% yoy)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%Ju

l-97

Jul-9

8Ju

l-99

Jul-0

0Ju

l-01

Jul-0

2Ju

l-03

Jul-0

4Ju

l-05

Jul-0

6Ju

l-07

Jul-0

8Ju

l-09

Jul-1

0Ju

l-11

Jul-1

2Ju

l-13

% p

ost

cod

e d

istr

icts

>10%

5% to 10%

0% to 5%

> Hometrack have analysed house price growth across 3000 postcode districts (PCD) of UK

> Chart shows % of PCDs registering price rises by level of growth

> Only 5% of country registering +10% growth.

> Areas in 5-10% have grown to over 20% as rises spread to outer London and S East

> Real impetus for improvement in indices is expansion in markets rising 0-5% as markets recover off a low base.

> Incomes growth needed to support sustainable growth

Source: Hometrack

8© Hometrack 2013


What explains level of house prices and drivers?

£0

£50,000

£100,000

£150,000

£200,000

£250,000

1976 1983 1991 1998 2006 2013

Actual house price UK

Implied house price

> Comparison of actual house prices against implied house price.

> Implied house price is what could be bought using 35% net income to meet mortgage repayments at prevailing LTV and average mortgage rate over time.

> Clear disconnect between actual and implied prices in late 1980s and mid 2000s. Impact of lower interest rates clear over 2008/9.

> Implied prices sensitive to changes in mortgage rates.

9© Hometrack 2013


Different mix of buyers setting prices41% buy to let and cash buyers

> Chart shows volume of sales by type of buyer

> Cash buyers (including cash investors account for one in three sales nationally.

> First time buyer volumes on the rise while existing owners are less likely to move.

> BTL, FTB and % cash buyers are net new demand (i.e. don’t add to supply hence upward price pressures).

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

BTL First timebuyer

Homemover

Cash

2006 2007

2008 2009

2010 2011

2012 2013

-57%

-31%

-50%

-18%

Source: Hometrack

10© Hometrack 2013


Turnover / market liquidity supporting prices

0%

2%

4%

6%

8%

10%

12%1

96

0

19

64

19

68

19

72

19

76

19

80

19

84

19

88

19

92

19

96

20

00

20

04

20

08

20

12

20

16

Tu

rno

ve

r ra

te o

f p

riv

ate

ho

us

ing

% p

a

> Turnover as important as prices

> Historically low turnover currently at just 4% – a move every 25 years

> Exacerbated by cost of moving - stamp duty and static prices

> Low churn creates scarcity and supports prices – worst for family housing

> Market opportunity for builders who deliver supply into market

11© Hometrack 2013


Private housing starts – rolling 12 months

0

20,000

40,000

60,000

80,000

100,000

120,000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Houses

Flats

> New private housing starts are up by 67% from the 2009 low.

> Total starts still less than half the level seen in 2007.

> Recovery in starts for houses stronger than flats. Buyers with embedded equity.

> Focus on margins rather than volumes by developers.

> Higher average selling prices and product that ties up less working capital.

Source: Analysis of NHBC data

12© Hometrack 2013


% private housing starts by type

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

% p

riva

te s

tart

s

1 bed flat 2 bed flat2 bed house 3 bed house4 bed house

> Marked shift towards 3 and 4 bed family housing accounting for 70% housing starts

> Apartment volumes down nationally with main focus in London.

> More 2 bed houses than 2 bed flats.

Source: Analysis of NHBC data

13© Hometrack 2013


Residential rental growth – 2 bed median

Source: Hometrack

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20

09

Q1

20

09

Q2

20

09

Q3

20

09

Q4

20

10

Q1

20

10

Q2

20

10

Q3

20

10

Q4

20

11

Q1

20

11

Q2

20

11

Q3

20

11

Q4

20

12

Q1

20

12

Q2

20

12

Q3

20

12

Q4

20

13

Q1

Re

nta

l gro

wth

pe

r a

nn

um

- 2

be

d

London

South East

South West

> Rental levels vary dramatically between London and rest of England by factor of 2x

> Rental growth for 2 bed homes across the S East and S West has averaged 1.8% pa (nominal) over last 3 years

> Rental growth strongest in London averaging c.5-7% pa on affordability pressures and higher occupancy levels

14© Hometrack 2013


Private rental market highly localised

Source: Hometrack

> The private rental market is high localised. 50% lettings occur in just 6% of the country

> Hometrack have developed a classification based on size, coverage and liquidity of local rental markets

> Mature - Activity across all property sizes - lower risk on voids and accurate assessment of rents

> Active - Good liquidity for certain property sizes but higher risk over voids and rental levels for less liquid property sizes

> Inactive - Low liquidity across the market and risk of voids and challenge accurately setting rents

15© Hometrack 2013


Private rental delivers a different size of home

Source: ONS

> Bedroom numbers drive rents and pricing levels

> Private rented sector delivers a smaller size of home

> 74% owner occupied homes are 3+ bed

> 62% private rented homes are 1 and 2 beds

16© Hometrack 2013


Tailoring policy to work with market imbalances and opportunities

© Hometrack 2012

17© Hometrack 2013


Income to rent and income to buy

Source: Hometrack

£0

£5,000

£10,000

£15,000

£20,000

£25,000

£30,000

£35,000

£40,000

£45,000

Hart District Surrey HeathDistrict

WinchesterDistrict

RushmoorDistrict

Basingstokeand Deane

District

EastleighDistrict

Test ValleyDistrict

Inc

om

e

Income to buy outright

Income to rent (private)

Affordable Rent (63% market rent)

LCHO 25% initial sale

18© Hometrack 2013


Income required to access housing – Basingstoke (2 bed)

Source: Hometrack calculations

Affordable rent (63% OMRV)

80% Private

rent

Shared owner-

ship (LQ price,

25% sale)

Shared owner-

ship (av-erage price,

25% sale)

Private rent - lower

quartile

Private rent -

average

Buy out-right - lower

quartile

Buy out-right -

average

Help to buy (MIG) - average

£0

£5,000

£10,000

£15,000

£20,000

£25,000

£30,000

£35,000

£40,000

£45,000

£50,000

£24,000

£30,000

£23,000

£27,000

£35,000£38,000

£28,000

£33,000

£45,000

19© Hometrack 2013


Income required to access housing – Hart (2 bed)



80% Private

rent

Shared owner-

ship (LQ price,

25% sale)

Shared owner-


25% sale)


quartile

Private rent -

average


quartile

Buy out-right -

average


£0

£10,000

£20,000

£30,000

£40,000

£50,000

£60,000

£27,000

£34,000

£27,000

£32,000

£41,000 £42,000 £41,000

£50,000

£56,000

20© Hometrack 2013


Income required to access housing – Surrey Heath (2 bed)



80% Private

rent

Shared owner-

ship (LQ price,

25% sale)

Shared owner-


25% sale)


quartile

Private rent -

average


quartile

Buy out-right -

average


£0

£10,000

£20,000

£30,000

£40,000

£50,000

£60,000

£28,000

£35,000

£26,000

£33,000

£39,000

£44,000£41,000

£50,000

£57,000

21© Hometrack 2013


Income required to access housing – Winchester (2 bed)



80% Private

rent

Shared owner-

ship (LQ price,

25% sale)

Shared owner-


25% sale)


quartile

Private rent -

average


quartile

Buy out-right -

average


£0

£10,000

£20,000

£30,000

£40,000

£50,000

£60,000

£70,000

£27,000

£34,000

£24,000

£34,000£36,000

£42,000£38,000

£52,000

£59,000

22© Hometrack 2013


Income required to access housing – Rushmoor (2 bed)



80% Private

rent

Shared owner-

ship (LQ price,

25% sale)

Shared owner-


25% sale)


quartile

Private rent -

average


quartile

Buy out-right -

average


£0

£5,000

£10,000

£15,000

£20,000

£25,000

£30,000

£35,000

£40,000

£45,000

£50,000

£25,000

£32,000

£21,000

£25,000

£33,000

£39,000£36,000

£40,000£43,000

23© Hometrack 2013


Income required to access housing – Eastleigh (2 bed)



80% Private

rent

Shared owner-

ship (LQ price,

25% sale)

Shared owner-


25% sale)


quartile

Private rent -

average


quartile

Buy out-right -

average


£0

£5,000

£10,000

£15,000

£20,000

£25,000

£30,000

£35,000

£40,000

£45,000

£22,000

£27,000

£21,000

£24,000

£32,000£34,000

£32,000

£37,000

£42,000

24© Hometrack 2013


Income required to access housing – Test Valley (2 bed)



80% Private

rent

Shared owner-

ship (LQ price,

25% sale)

Shared owner-


25% sale)


quartile

Private rent -

average


quartile

Buy out-right -

average


£0

£5,000

£10,000

£15,000

£20,000

£25,000

£30,000

£35,000

£40,000

£45,000

£50,000

£22,000

£28,000

£20,000

£25,000

£32,000£35,000

£30,000

£39,000

£44,000

25© Hometrack 2013


Key messages

> Housing market facing a wide range of pressures across tenures

> Intervention and support maintaining relatively high house prices

> Housing markets are highly diverse across local areas and sub-markets

> Affordability varies across tenures

> Not all tenures work in all markets

26© Hometrack 2013


Hometrack6th Floor, The ChambersChelsea HarbourLondonSW10 0XF

[email protected]

www.hometrack.co.uk

Development Programme

Introduction1. Sales2. Market3. Growth

Leigh Road outperforming assumptions

Sales Achieved

100%

Leigh Road outperforming assumptions

Sales period 2 weeks

Valuation +2%

1st tranche

53%

Wrecclesham Road outperforming assumptions

Valuation +4%

Sales off plan 100%

1st tranche

45%

Sales period

0? weeks

Wrecclesham Road outperforming assumptions

East Anton mixed performance

East Anton mixed performance

Sales Achieved

35%

Valuation Houses ↑

Flats ↓

1st tranche

46%

Sales period

12 weeks

QEB mixed performance

QEB mixed performance

Sales Achieved

56%

Valuation +1%

1st tranche

43%

Help to Buy vs 1bf’s

Sales period 4 weeks

Sales ReviewStrong demand continues for Shared Ownership

Large variances on house types;

Type Sales period

3BH 8 wks

2BH 3 wks

2BF 19 wks

1BF 30 wks

£5.4m - £17.9m

Strong capacity and surplus from completed project

Competition

MarketOptimism returning in land market

Local Authorities remain pro growth, lack of long term sites

All markets buoyant

Competition strong on prime sites

Unsuccessful Bidding Activity, up to 50% below winning bid

• Eastleigh

• Fleet

• Basingstoke

• Wokingham

Collaboration / JVStrategic JV arrangements to deliver new homes

JV board, jointly controlled

Not site specific

Limited company or LLP

Not exclusive arrangement

Capitalisation

Interest from & – different offers

Who else is doing this – GTL & Thames Valley (£50m), Barratt (Group 2bn GDV)

Construction ManagementAct as lead contractor on new developments

Efficiencies in development costs through control of supply chain, increased risk

Undertake construction activities for parent

Internal / External?

Skills gap or market purchase?

Purchase may bring added benefits?Could outsource if successful

Who else is doing this - L&Q (£50M), Hyde (£15M)

Cost sharing GroupsVehicle to recover VAT on:

• procurement of goods / services

• Include overheads (legal, staffing resources)

Must be a separate legal entity

VAT recovered through supply of services

Scale needs to be considered

Discussion

Board Development Session

board development session. housing market update sentinel housing selina clark – 14 th october...

Documents

hometrack slide

residential property

specialist insight

market slide

residential values

yoy hometrack

demand slide

hometrack rental levels