Positive mental attitude in property
As lockdown eases for the construction industry I’ve been thinking a lot about the impact this will have on the housebuilding market.
Fundamental to the real estate market in Scotland generally are the key economic drivers of supply and demand, but market sentiment cannot be ignored either. Sentiment supports demand.
Pre-Covid-19 there was still a lack of supply of new homes versus demand and the market was in good shape. Since then there’s been a dearth of good news stories around but looking south of the border and comparing their experience to ours does give some cause for cheer.
Critical to seeing how the housebuilding market responds in Scotland will be sales rates. Some major plc housebuilders have reported “very high” levels of demand for appointments at sales centres and show homes after reopening last month in England. For some, appointment bookings trebled in the last week of May and there was a material surge in website traffic compared to the same period the previous year.
This is great news, but is it a spike simply caused just by three months’ pent up demand? Can it be sustained? Sales rates and prices underpin land values so good metrics here for a sustained period will dictate housebuilders’ appetites to get back in the game of acquiring land for development.
Sentiment plays a key role in that. During the last recession I felt that some market commentators talked us into a very dark place that it was difficult to see a route out of. I feel we owe it to ourselves to remain positive and make the most of the release of demand caused by three months of lockdown.
Demand is also expected to be supported by the longer term trends that Covid-19 has accelerated, of: home-working (so better and dedicated space needed for that in new homes); less commuting; fast broadband; and good outdoor space.
A lot of our work is for clients developing large scale sites, primarily creating homes with gardens, and we expect that to remain as a key product focus. The extension of Help to Buy in Scotland is also another positive contributor to market sentiment.
Housebuilders will be watching each other like hawks in the coming weeks and months. All need a steady supply of land and that can’t be created quickly. The pace of the planning system, availability of good sites, lack of infrastructure, pressure on schools’ capacity are just a few of the reasons why delivery of the right site for development is not a quick process. Decisions taken now will dictate the level of success of housebuilders over the next 2-5 years.
Taylor Wimpey’s recent announcement of their successful raise of £522M for land acquisitions by way of share placing is a fascinating development. They comment that they are now “seeing a significant opportunity to invest in land at attractive prices”. If this capital is deployed for short term land acquisitions then market sentiment will be buoyed and others are sure to follow suit. Such a move may even off-set some negative sentiment if sales rates can’t be sustained through the autumn and winter.
Ultimately, though, what underpins demand for new homes is a good employment market and it is too early to say how that will be affected by coronavirus. Only once the furlough scheme starts to wind up will we see how the land lies and if demand for new homes can remain strong.
Until then we owe it to ourselves to maintain resilience through being positive about prospects and working collaboratively to make the most of the undoubted positives that there are as lockdown eases.
8th September 2020
Andrew Rutherford tells us how lockdown living has a knock-on effect on the changing housing market.
7th September 2020
We discuss how the Heat Networks Bill could make a difference to housebuilders.
7th September 2020
What are the contractual issues houesbuilders need to consider moving forward?