On the shortage of new homes…

On the shortage of new homes…

Posted on March 16, 2009 in 3plus1, Buying, Educational blog, Finance, Property, Strategy, UK

James De Souza

Hi everyone,

Over the past few weeks the number of property deals that have come across my desk has significantly dropped. The developers we take property from haven’t got anywhere near the choice of property that we’re used to making it incredibly hard to find the same deals that “stack up” and in turn find the stock.

Simply put, stock levels are drying up!

In addition to the issues that have always been a factor (population growth, more people owning a second home etc), the reason why stock levels are at an all time low now is because of two things:

1. Because of the uncertainty developers faced last year with falling house prices and less demand, they had put a stop on their supply. Many developers have been waiting to sell their current stock before even thinking about forward build. Why would a developer build something with the knowledge that they might not even make a profit on it? Instead, you’d simply close up shop (which many developers actually have done), which has further added to the supply shortage.

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And 2. More people buying. Every day more and more people are realising that prices are at absolute rock bottom. Consider that the cost of rebuilding a property is more than actual purchase prices at the moment. Every developer I talk to tells me how they are finding owner-occupier sales picking up dramatically, despite there being a lack of finance available to them. This is partially because of the various schemes in place to help first time buyers onto the market, and again their awareness that now is a great time to buy.

Actually, as more people are becoming aware of these deals, the more they are willing to pay…and once again, we’re seeing people undercutting other people’s offers which is pushing prices up.

Even before developers put their build programs on hold there were concerns over the low number of properties being built in the UK. With the number of households in England predicted to increase by a quarter of a million per year and with the number of new homes predicted to be half the required amount (at just 70,000) this year and next, it’s clear that demand is now much greater than supply and will continue to trend that way for the forseeable future.

Regards,

James De Souza
Director of Sourcing

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