Speaking at the Mortgage Solutions British New Homes Mortgage Senate, Richard Donnell, executive director at Zoopla, said the sector had to be “realistic” about the fact there was not going to be a “massive increase” in the number of homes being built over the next two or three years.
Donnell said this was because it was not economically viable for housebuilders to buy land in two-thirds of the country because the cost of building had “rocketed by nearly 20% in the last two years”, while average sale prices had only gone up by 1%.
“Meanwhile, the government is lying on more and more policy cost, through the Community Infrastructure Levy, from the [Building] Safety Regulator… the challenge at the moment for the government is they want more homes, and they’re definitely genuine in that, but the question is, it’s not really economically viable.”
He said the sector would be stuck around the current levels of net additions to supply and did not expect to see an increase in the short term.
Donnell said there were more homes for sale than in the last decade, resulting in the biggest sales pipeline in four years, which was good for lending. However, this posed a challenge for housebuilders as there was a lot of competition, who were building on the “lowest number of sites they have for a few years”.
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He said prospective buyers browsing for a home on a property portal were probably not seeing all the options available to them because of this increase in supply.
He added that there was a North/South divide “embedded” in the housing market, where higher price increases were seen in areas with better affordability.
Donnell said “successive” mortgage regulation had increased barriers to homeownership, particularly in certain regions, and housebuilders faced the challenge of it being more viable to build in higher-priced areas, even though it was less affordable for buyers, but in areas where it was more affordable, it was less viable to build.
“There’s a total disconnect between where it’s incentivised to build and what’s affordable,” Donnell added.
He said this was something for policymakers to consider, but he did not believe there would be much change soon.
Buyer interest dropping ahead of the Budget
Donnell said following speculation around tax changes to be announced in the Autumn Budget, there had been a drop in buyer interest for homes worth more than £500,000 and, in the last five weeks, “fewer people had put their house on the market”.
Referring to rumours that a property tax could be imposed on properties worth £500,000 and more, Donnell said this made up about a third of the market and was concentrated in Southern regions.
He said if this policy was introduced, it would be “fantastic” for liquidity and transaction volumes, as while it would not be good for house prices above this level, “the housing market is in such a stuck position”.
Donnell added: “Something’s got to change; mortgages aren’t going to fall in a hurry, incomes are rising slightly. We do need some bold action to get more liquidity into the market.”
