Why off-plan sales are really falling – Pierson

Data from Hamptons shows that not since 2013 has the proportion of off-plan sales been lower. For those working in new homes, this slowdown will come as no surprise, given the continued planning hurdles and delays builders must contend with.

The government’s assessment that around 350 additional planners were needed to speed up the process appears woefully inadequate when compared to suggestions from the Home Builders Federation (HBF) that the requirement was more likely to be in excess of 3,000.

These estimations are worlds apart, so clearly someone has underestimated the scale of the problem.

But there’s more than a painfully slow planning process at play here.

Affordability pressures on investors, homebuyers and builders have each taken their toll on the quantity of homes sold before construction completes.

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The peak year for off-plan sales was 2016, when almost half of all new-build homes were sold before construction completed. This was also the year the second home stamp duty surcharge was introduced, significantly dampening the appetite of investors, who were once a major source of off-plan demand.

Those affordability constraints are now being keenly felt by owner-occupiers too, particularly in Southern regions, where house prices are far higher and cost-of-living pressures more acute.

The knock-on consequence of high rents and house prices is that first-time buyers are staying at home for longer. When they are finally ready to fly the nest, flats offer less appeal. Instead, many want a larger property they can stay in for longer, avoiding the prospect of paying stamp duty again in a few years’ time.

Add in concerns around escalating ground rents and service charges for apartments, alongside lower availability of high-loan-to-value (LTV) mortgages for this sector, and it becomes easier to understand why off-plan flat sales have fallen from 55% to 38% over the last decade.

Housebuilders themselves are also facing growing affordability pressures.

Regulation, increases in material costs and an acute shortage of tradespeople have all significantly increased the cost of building, while the ability to recoup those costs has become constrained by local markets – where developers are competing against historically high levels of second-hand, cheaper stock for sale.

Change is needed

It’s no wonder, then, that housebuilders are nervous about building at breakneck speed – a common criticism levelled at developers over slow build-out rates – if there is concern that once complete, homes could stand unsold.

Empty homes are expensive. Alongside spiralling finance costs, an estimated additional £264.5m last year, builders also face the ongoing expense of council tax, site security and maintaining vacant properties.

To strengthen off-plan sales again, we need a market where homes can be viably built, confidently financed and realistically afforded.

Until that happens, slower sales rates are likely to remain a symptom of a housing market under pressure at every level.