Max Fellows, senior surveyor in the development team at Fisher German, takes a deep dive into the 2024 housing market and considers a variety of factors which are affecting the industry – for good and bad.

This year started with a number of major challenges for the housing market, but it is finishing with more positivity.

The first quarter witnessed a decline in new housing pipeline approvals, with planning permissions granted to housing projects down by 8% compared to last year’s final quarter, and the number of units approved is 12% lower than in Q1 in 2023.

Despite these initial setbacks, the prevailing market sentiment is more optimistic following Labour’s landslide victory in the General Election.

This has been driven by several key factors including:

• Government initiatives: The newly elected Government has pledged to build 1.5 million new homes over the next five years – a promise that has garnered significant public attention.
• Favourable mortgage rates: Mortgage rates have decreased from 5.19% before June 2024 to as low as 3.79% for a five-year fixed rate.
• Interest rate projections: The Bank of England has reduced interest rates again in Q4/2024, potentially reaching 3% by early 2026.
• House price trends: The Halifax House Price Index reported a 0.3% month-on-month increase in house prices for the third consecutive month.
• RICS forecast: The Royal Institution of Chartered Surveyors (RICS) anticipates a 5% annual rise in house prices in 2025, the strongest growth rate since November 2022.
• Inflation and investment: With inflation hovering around 2%, the projected 5% growth in house prices for 2025 presents a highly attractive investment opportunity.

However, the current shortage of new land supply poses a significant challenge for developers and housebuilders as they cautiously rebuild their land pipelines.

While land values remain stable, the process of securing land deals is taking longer than it did two years ago.

Major players in the market are adopting varied strategies: some are focusing on margins, impacting their competitiveness, while others are selling serviced land parcels on large sites to mitigate risks, release capital, and acquire smaller sites.

Greenfield and Urban Land Values

The market is showing tentative signs of improvement. The balance between land supply and housing demand is crucial in determining future land values. Any limitation on land supply will ensure that land values remain resilient. Conversely, if supply increases faster than demand, there will be a corresponding rise in transaction volumes, leading to downward pressure on land prices.

The current shortage of greenfield land suggests that short-term values will remain resilient, while viability issues continue to influence urban site values. Although there has been an increase in bid levels for optimally sized sites in primary greenfield areas, this trend is not mirrored in other markets.

Brownfield sites

High-density, flat-led schemes in urban locations face challenges due to higher risk profiles, additional build costs, increased borrowing costs, and lower confidence in the future viability of these sites. Values for urban student accommodation appear to exceed those for Build to Rent and private sale and there is continued optimism regarding the future of Build to Rent having a larger share of the development market, but currently, the funding market for this is on the reserved side.

New Build

According to Energy Performance Certificate (EPC) data, 229,700 new homes were completed in the 12 months to June 2024, suggesting that the annual supply of new homes continues to hover around 230,000 since the end of 2023.

Some commentators believe that housing completions could fall as low as 160,000 by 2024/25.

But there are two sets of data worth considering:

• Construction output, according to ONS, was recorded as being over 15% lower than in 2019.
• According to the National House Building Council (NHBC) in August 2024, annualised starts between Q2 2023 and Q2 2024 fell by 55%.

Planning Application Approvals

Glenigan and the Home Builders Federation (HBF) have reported that approximately 237,000 new homes secured planning consent in the 12 months to Q1/2024. That is a long way short of the Government’s target of 300,000 a year for the next five years.

The issue is compounded by the fact that approximately 10%-20% of consented homes fail to be built.

In addition, the number of units approved during Q2/2024 slipped by 2% against the previous three months and was 12% lower than Q2/2023.

In Q2/2024, housing schemes of ten or more units accounted for 91% of approved units. The remaining 9% of units were smaller new build projects of up to nine units including self-build schemes, homes included within non-residential projects and conversion of non-residential properties.

So, while the housing market in 2024 has faced initial challenges, the outlook remains positive, supported by Government initiatives and favourable mortgage rates. The balance between land supply and demand will continue to play a critical role in shaping the market’s future, and that remains difficult to predict.

Via @PropertyWire