Don’t blame lack of demand

Tony Ward

August 30, 2016

housing bubble house price

Tony Ward is chief executive of Clayton Euro Risk

One report on housebuilding jumped out at me in last week’s press.

Compiled by Capital Economics and Shelter, it suggested that housebuilding could fall by 8% in the coming year blaming uncertainty following the EU vote. The report acknowledges that while Brexit ‘will not substantially impact prices, [it] will have a longer term drag effect on house building’. Why, I ask myself, would this be the case?

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Analysts at Capital Economics said that the decline in housebuilding would be caused by a fall in demand, which would lead to fewer developments being initiated. They predicted that housing projects would not recover until the second half of 2017. The report said: “Construction is likely to take a hit over the next 12 to 18 months. When growth rebounds, builders may be restricted in how quickly they can ramp up production.”

I’m not convinced by this argument. The crux of the whole thing lies in that word ‘demand’. In my opinion, demand in any meaningful way will not reduce. Why? Because of the chronic shortage of housing supply, which the report identifies, but also a strong return of confidence which now seems to be permeating the  economy.

Housebuilders don’t seem unduly perturbed post-Brexit, either. Persimmon observed that customer interest since the Brexit vote had been ‘robust’. In fact the company reported a 17% increase in reservations over the past seven weeks, compared with the same period last year. The number of prospective buyers visiting sites is up 20%, indicating that homebuyers have certainly not been put off making serious purchases.

And it’s not just Persimmon. David Ritchie, chief executive of Bovis Homes, said recently that sales rates ‘have rebounded to normal summer positions’ with a ‘strong forward order book’.

While we are certainly not building enough houses in this country, I can’t see a major blip coming in terms of residential housing construction. The numbers speak for themselves.

More importantly, I get the sense that consumer confidence has returned. The most recent YouGov/Cebr Consumer Confidence Index shows that it has risen at its fastest monthly pace in three-and-a-half years. The poll reveals significant increases in people’s expectations for their household financial situations and property values over the coming year.

As I’ve said many times before, confidence is all.

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