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What Are National Homebuilders Forecasting For Newly-built Home Sales In 2015?
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The continued rise in home prices, new and existing, are incentive enough for developers and investors to build more. Fortunately, more land is available.
The trend-lines are clear: the high demand-low supply pressure on homes in the UK, while variable by region, continues a multi-year upward trajectory of house prices. The Halifax Price Index in June 2015 show a 3.3% hike over the first quarter, when uncertainty over the national election in May somewhat slowed sales.
And of note to investors engaged in capital growth planning and the like, this is not simply due to a low supply of homes in a country that needs to build more. The updraft causing loftier prices and brisk sales is also tied to higher employment levels, overall economic growth, increased real earnings to workers and very low mortgage rates, say Halifax economists.
Nationwide, the juggernaut building society and a big player in UK mortgages, shows that the average price of all types of new-build homes (terraced, detached, semi-detached, bungalows and flats) is now £188,980, up from £177,477 in the last quarter of 2014. Some average prices for new-build homes were higher in 2014, but the 2015 figures show a strong uptick in the years following the 2008 financial crisis (it was £137,062 in the third quarter of 2011). A UK land investment made four years ago could easily yield a good profit now.
What does this say for individuals, institutions and firms who invest through land investment funds? What are the prospects for growth, given the strength of the housing market?
“Supply remains very tight with the stock of homes available for sale currently at record low levels,” says the Halifax chief economist. “This shortage has been a key factor maintaining house price growth at a robust pace so far in 2015.” In other words, just about anything built as well as existing homes that become available for sale will find a waiting market.
But regionally, there are differences. The North of England as well as Scotland and Wales do not see quite the price growth of London and the South East. But what slows development of new homes, where capital growth can be greatest for investors, is the planning process. Driven to local (vs. regional) authorities by the 2011 Localism Act, which created the National Planning Policy Framework (NPPF), local councils now hold the reins on determining what gets built where. That said, many local planning authorities are playing catch-up on establishing plans for their councils, often depending on those capital growth-oriented investors to propose developments that they identify as likely to sell and serve local needs such as to provide housing for the area’s employment base.
One area typically considered controversial is when approvals are given to building on green belt land. Funds invested in such land can achieve significant growth when building is approved; in fact, there was a strong increase in the number of sites approved under the first Cameron government. Between 2010 and 2015, according to a BBC Radio investigation, building on the green belts topped 12,000 homes in some years (prior to Cameron, in the year 2009-2010, only 2,258 homes were built on green belts). The Conservatives have promised to increase the housing supply by 200,000 per year without encroaching on these green fields, but that claim is met with widespread scepticism. Population growth forces building both up and out.
Investors are most interested in property funds when they can perform better than other real assets. That may be possible on brownfield land, but not as often. Where cities and towns need employment is very often to the determinant of where the capital growth investor should put his or her money. Because the majority of councils have yet to develop a master plan, it is incumbent on the planners representing the investors to develop smart development rationales. Very often those investors will also fund requisite improvements to, or expansion of infrastructure to accommodate new homes.
Investors come in all stripes, but understanding the many variables of land and real estate development is not native to everyone. An independent financial advisor can provide an objective look at specific investments as well as how much to weight a portfolio in this type of asset.
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