The new build housing sector has been booming over the last few years. New build estates have been appearing right across the country. It seems as though new build housing developers have been rushing to build (and sell) as many new houses as possible.
Official figures report that around 216,000 new builds were completed last year and around 243,000 the year before. This was still far short of the 300,000 new homes that the Government has estimated are needed every year however – a target which has never actually been met let alone exceeded.
But things have certainly changed in the property market over the last few months.
So what’s likely to happen in the new build housing market?
Higher interest rates, to say nothing of the cost of living, are going to make many people think twice about buying a new house. Or even moving for that matter. Stamp Duty savings are small compensation in reality.
And it’s important to realise that these aren’t the only factors affecting the new build market at the moment.
Construction costs have risen sharply of late. It costs a lot more in materials and labour to build a new house. The price of materials has risen by around a quarter over the last year alone. Some building materials are subject to price volatility, making it hard for developers to plan ahead, and are also in short supply too.
Also, the Help to Buy scheme in England has come to a close. Help to Buy has supported a lot of demand for new builds in recent years. Over 360,000 buyers have bought using Help to Buy since it started – just over 80% of them first time buyers.
Several developers have already said that the market is being affected:
Barratt Developments, the UK’s largest new housebuilder, has reported that new house reservations have fallen by a third in recent months.
Bellway has also reported reducing demand, and says it may build 1,000 fewer houses than planned as a result.
There are a few possible impacts of this change of market conditions:
It’s likely that fewer new build houses will be built.
New build developers might have to raise their prices. This could make new builds less competitive and less attractive compared to existing houses, especially with the increasing costs of mortgages. (New builds are often sold at premium prices in any case.)
New build schemes that are in planning might be cancelled. Developments that have been started might be slowed down or even curtailed.
New build housing developers might reduce their operations. They might keep more land in their land bank and look to buy less land for new schemes. (Depending on how prices go they might look to buy more land for their land banks though.)
There will be few new build houses on the market. This could mean that there is more demand for existing properties as buyers who would have bought a new build have to consider existing stock. Those potential buyers might decide not to move at all.
How could this affect the property market overall?
If fewer new houses are built then this could worsen the housing shortage both short and long term. Even in the good years not enough new houses were built to satisfy demand. This could affect not only the sales market but the rental market too as even fewer homes become available to rent.
It’s likely to reduce the overall stock of houses on the market. This could be further reduced if more homeowners decide not to sell because of increased interest rates.
Oddly this could work to support house prices. They might not fall by as much as some experts suggest. It could even stop them falling. In some circumstances it might support further price rises.
Experts who are predicting big house price falls may not have accounted for the fact that, although there may be reduced demand to buy, there will also be less to buy. Some people will have to move. So the sellers that there are may be able to hold out for a good price.
Overall it’s very likely that the new build housing market will be slower to some extent compared to recent years. That could have implications for developers, builders, buyers and estate agents alike. However, the overall direction of the property market is still very much one for the crystal ball.