House starts tumble

May 16 2008

New housing starts tumbled by almost a quarter in the first three months of 2008 to their lowest level in 12 years as builders shelved projects in an ailing market, official figures showed today.

Firms began work on 32,100 dwellings in England during the first quarter - 24% below the same period in 2007 and the worst since 1996, according to the Department for Communities and Local Government (DCLG).

The gloomy figures follow profit warnings from a host of housebuilders who have virtually stopped work on new homes as prices fall.

Barratt Developments said yesterday that new projects were only being started on a “highly selective” basis, while Persimmon - the FTSE 100 Index’s only remaining housebuilder - has also put plans for new schemes on hold.

Steadily rising interest rates until July last year began to ease the UK’s runaway housing market before the credit crunch and resultant clampdown in mortgage lending intensified housebuilders’ woes.

The worst-hit regions were Yorkshire & Humber - where new starts fell 41% - the North West, down 30%, and the East Midlands, which saw a 22% decline, according to the DCLG.

Annual figures for 2007/8 also warned housing completions exceeded starts in England for the first time since 1992/93, when the housing market was hit by the last recession. There were 156,400 new starts last year - almost 18% below the peak of 184,900 in 2005/6.

And yesterday’s bleak forecasts of rising inflation and a sharp economic slowdown from the Bank of England mean there is little chance of major rate cuts this year to ease the pressure on the market.

Howard Archer, chief UK economist with Global Insight, said: “The sharp slump in housing starts in the first quarter reflects housebuilders’ deep concern about the outlook for the sector, as activity and prices buckle under the toxic combination of elevated affordability pressures and very tight lending conditions.”

David Stubbs, the Royal Institution of Chartered Surveyors’ senior economist, added that the figures would put Government housebuilding targets under pressure.

He said: “Given the on-going problems in the mortgage market and a weakening economy, the decline in house building will surely continue.

“This promises to makes the Government’s pledge to build three million homes by 2020 a difficult one to keep.”

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2 ECONOMY Housing

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The official figures come two days after Housing Minister Caroline Flint accidentally revealed a private Cabinet briefing on the dire state of the UK property market.

Her briefing notes - photographed by the press - warned of “sizeable falls” of up to 10% in house prices.

Ms Flint also indicated that the Government could struggle to hit its target of building three million new homes by 2020.

“Housebuilding is stalling,” she warned. “New starts are already down 10% compared to a year ago. Housebuilders are predicting further falls.

“Having seen net additions reach roughly 200,000 in each of the last two years, the figure for 2008-9 is almost certain to be well down on that.”

Ms Flint said today: “It’s always the case there are short-term trends and different rates of progress towards any target, and housebuilding is no exception, especially in the current difficult market conditions caused by the global credit crunch.

“But it’s important to remember this is a long-term target, and the fundamentals for a healthy housing market over the long term are in place - with high employment, historically low interest rates, and long-term demand for new homes from first-time buyers. Our long-term target for 240,000 homes a year by 2016 is challenging but remains achievable.

“It is therefore essential - and in their own interest - for house-builders to base their decisions on the economic fundamentals and longer term trends.

“At the same time, we are putting more measures in place to support the housing market with yesterday’s announcement of a £200 million fund to buy unsold homes on the market, as well as expanding support to help first time buyers on to the property ladder through shared equity mortgages.”