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Insight report: Which are the most new build dependent housing markets?

By Richard Donnell on 09 March 2016
  • The geographic spread of new housing development is not uniform. Some local housing markets are far more new build dependent than others. Fifty eight local authorities have a new build concentration of more double the national average.
  • As overall housing transactions plateau it is vital that developers consider the breadth of competition in local markets and the impact on sales rate and price optimisation.
  • This report presents an analysis of the most new build dependent housing markets where policy changes such as Starter Homes are likely to impact most on builders’ existing businesses.

The geographic spread of new housing development is not uniform. Some local housing markets are far more new build dependent than others. This is important as developers plan investment in land and assess the potential impact of Starter Homes on their current operations. This report presents an analysis of new build supply across Great Britain.

Each year around 10% of all property sales are new build, a trend that has held firm for the last 20 years.

This report, based on Hometrack Dashboard metrics, tracks ‘new build concentration’ which is private housing starts in the last 12 months expressed as a percentage of total housing turnover over the same period. Starts are preferred to completions which are too backward looking.

Data from DCLG shows new private housing starts are up by 3.1% in the last year and by 33% over the last 3 years as builders increase output on the back of improved demand and rising housing transactions.

Figure 1 shows total residential transactions are up by 41% from the lows of 2009 but they have plateaued in the last year. This is important as builders are under pressure to increase output which presents a challenge in the face of slower growth in overall market volumes. The Help to Buy equity release scheme has provided important support for new home buyers and is set to remain important supporting new build volumes in the near term.

Regional profile
On a regional level the highest new build concentration is in the North East (15%) followed by London (14.3%) and the East Midlands (13.9%) – see figure 2. The above average level in the North East reflects a slow recovery in the general level of housing transactions in the region, compared to the rest of the country. Help to Buy is being used on an above average proportion of housing completions in the North East to support delivery and this is resulting in a 15% new build concentration.

The above average concentration in London is to be expected. The region has registered a major increase in housing supply in the last 5 years and while the general level of housing turnover has also grown so has new supply. New housing starts in last year equate to 14% of all sales. The highest concentrations are in inner London where regeneration schemes have been a key focus of new housing delivery.

New build concentration across Great Britain
Source: Hometrack Dashboard

Localised analysis
Our analysis shows there are 58 local authorities with a new build concentration over 20%. These markets account for a third of all private homes started in the last year. These contain a mix of London local authorities where regeneration is driving delivery and markets where there have been significant releases of land for development.

The London borough of Newham has the highest new build concentration, with more new homes started in the last year than sold in the entire borough in the previous year. This constitutes a new build concentration of 104% and far outstrips the next areas in London namely Lambeth (38%) and Southwark (36%). New build concentration in London needs to be set in a broader context as major regeneration schemes are targeting demand from the UK and overseas rather than a specific borough.

This report tracks ‘new build concentration’ which is private housing starts in the last 12 months expressed as a percentage of total housing turnover over the same period.

Figure 1: Residential transactions
Source: Hometrack, HMRC, DCLG
Figure 2: New build concentration - regions
Source: Hometrack Dashboard

Outside London, the highest new build concentrations are Cambridge (42%), Ribble Valley (42%) and Midlothian (39%). The map shows the new build concentration for all local authorities and highlights what is a significant amount of new housing delivery in central England between London and Birmingham and Nottingham.

High new build concentration is not negative and can indicate that developers are tapping into strong latent demand for new housing in areas of high, un-met demand or areas with new and improved transport accessibility or strong employment growth.

Developers looking to buy land or increase investment in areas with high new build concentrations need to assess the impact on assumptions for sales rates and pricing levels.
This is particularly important given the proposed transition from Help to Buy to Starter Homes in 2016 where there is overlap between the two schemes. The impact of Starter Homes is likely to be greatest in these high concentration markets.

Figure 2: New build concentration - top LA's
Figure 2: New build concentration - top LA's
Source: Hometrack Dashboard

Many markets with limited new supply
At the other end of the spectrum the Hometrack analysis shows 102 local authorities have a new build concentration of less than 5%. This is down to a mix of reasons covering land availability, the strength of housing demand and the local appetite for new housing development.

The map shows the contrast between inner and outer London as well as the home counties around London where the scale of new housing as a percentage of all turnover is low due to a smaller average size of scheme. Low new build concentration is generally a positive for developers. In rural areas with lower demand this is to be expected. In areas of high housing demand such as the Home Counties the challenge is getting scale of delivery from the land available while meeting planning requirements.

The current pattern of new housing supply is unlikely to change markedly although we expect an expansion away from the south east as housing demand improves on the back of continued economic growth.

 

Interested in finding out more about new build concentration? Hometrack Dashboard tracks it at local level, right across Great Britain. 

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Insight report: Which are the most new build dependent housing markets?
By Richard Donnell
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