June 2009 Archives

One other thought - earlier today McCarthy categorially denied the Times story today that a majority of the funding for new housing was being drawn from the Decent Homes programme. He also denied that there was a need for as much as £750m to be found from other departments within government to pay for the new housing package (see my previous post). Nonetheless, he was vague about exactly where and how the cash would be allocated and decided.

As this BBC story lays out, the whole thing seems to be dissolving into a mass of confusion one way as departments scramble around to protect their own budgets.

Lots of exciting points came out of the press conference this morning with Richard McCarthy and Sir Bob Kerslake.

Following on from the Building Britain's Future announcements yesterday, the HCA announced another £500m for the national Kick Start programme, which gives cash to developers struggling on starting with schemes. The new cash will prompt another bidding round, in which the HCA has also relaxed the deadline for construction completing - several developers had previously complained that development must finish within two years, and the HCA has consequently said new bids must complete within three years. This will be a welcome addition for housebuilders.

The most key point today was the launch of the new public land programme. This has been a long ongoing saga - the HCA has been talking about taking equity stakes in developments since its inauguration, but the idea has been plagued by rumours of rows and Machiavellian power struggles between the CLG and the HCA.

However, with a new housing minister the frost seems to have thawed, and the model of joint risk shared between the private partner and public agency seems to be full-steam ahead.

This model will see the HCA and other public bodies (who might not be quite as willing, I suspect) putting land forward for housing development, which will be built out as both private and affordable houses by private contractors and housebuilders.

This is a mutually beneficial scheme. The housebuilder takes on less risk - gets less returns too of course - but keeps its staff busy and employed, keeps it name out and active in the market, and the government keeps home building rolling forward.

The only slight note of caution I would sound is to watch out where the funding for these new initiatives comes from. McCarthy said money was being reallocated from "underspends" in other departments, as well as their own, and Kerslake cautioned that if other departments are allocating money, then it was "only fair" that they look at their own budgets too. It is very unlikely, then, that all existing funding commitments will emerge unscathed.

Gordon Brown has been laying out plans to increase affordable housing in the UK this afternoon in Parliament, much to the disgust of David Cameron, who has called it a "package without a price tag".

The price tag Labour has put on it is £2.1bn - earmarked to build an extra 11,000 affordable homes over the next two years.

This is a massive increase from £600m promised in the Budget. The policy certainly reads like a manifesto statement from a struggling government that told Radio 4 this morning that it would not complete a spending review before the next election.

Read Brown's full statement here or the BBC's Nick Robinson's analysis here

The Homes and Communties Agency is holding a briefing tomorrow to go through all the small print, so watch this space for an update....

Reading the newspapers this weekend were reports that Grant Bovey's failed Imagine Homes has racked up losses of more than £50m for Lloyds bank, which it inherited from HBOS.

The combined banking operation is now 43% owned by the state - which means that around £20m of those Imagine losses equate to taxpayer cash down the drain.

The most key part seems to me that, as the Sunday Times points out, the company was loaned millions by the bank "even though the tycoon had little professional background in property and had already presided over a number of collapsed firms."

Surely, without being a banker, you could have seen the risks of this investment. I have certain friends (don't we all?) that you hesitate to lend a tenner to, because you know it will be months before you see it again. Those who are never the ones to offer to get a round in the pub, or who are always skint when it comes to going out for dinner.

It doesn't take rocket science to work out which property companies were built on a firm foundation, and which were on the rocky basis of an overinflated market, in which you could throw anything into the mix and it would probably sell. Some investments are just not sound.

It's hard to feel too much compassion for Bovey. He and his celebrity wife Anthea Turner, who have recently bought a £5m mansion to live in, are reported to have earned more than £100,000 for their recent appearance on TV's Hell's Kitchen. And Bovey even launched a new company, the Distressed Property Company, in April, aiming to market newly built homes that have failed to sell.

While the couple seem to have picked themselves up quite comfortably following the company's administration, there are reportedly up to 200 creditors, owed millions of pounds by the Imagine Group, still waiting to be paid.

I have met with three separate resi agents today, and they have all said that the bottom of the market has been reached - and the consensus seems to be February.

Christmas and the period before it was absolutely dire, and they all look traumatised talking about it. But, since then the London market has been picking up, deals are going through, and both the bulk residential investment and the estate agency side is seeing a substantial increase in not just interest but concrete deals.

So much so, that I understand some estate agents are even starting to recruit more staff. Most agencies were cut back to the lowest possible capacity through the culls of last year, and now that buyers are back in the market, they need more staff to deal with it.

All three agents were optimistic about the year ahead, but with a disclaimer - reaching the bottom does not mean that the market has recovered, and it seems likely that the rest of the year will be quite flat. But, having survived an truely awful few months at the end of last year, it was good to feel a hint of optimism in the air.

I think the most shocking re-calcuation of the month award would have to go to the Council of Mortgage Lenders' revised predictions for net lending levels this year.

The CML - which represents the vast majority of lenders in the market - has upgraded their market forecasts drawn up in December of a year-end deficit of £25bn by the end of 2009. It is now predicting a fall of just £5bn.

Read the full story here and the CML statement here

And speaking of new ways of housebuilders keeping afloat - Barratt is to launch a new selling scheme targeting soldiers, if you'll excuse the pun. The initiative offers members of the army, navy or air force a £500 discount on every £25,000 on the cost of the house.
So, a typical £250,000 house would see £5,000 cut off the price.
Obviously this is a very worthy scheme, particularly as so many ex-servicemen end up on the street (See this article  - if you've time to read it through then do, it's really moving)

Now, obviously, I'm not going to say that Barratt are going to solve homelessness, marriage breakdowns and crack addition with this new move. But, anything that helps to prevent people ending up on the streets can only be a good thing - and of course, it's handy for Barratt's own balance sheets to keep shifting stock.
I've not been aware of any other housebuilders doing similar schemes yet, so please do get in touch if you know of any - particularly ones targeting journalists!

A massive housing scheme at the Thames Barrier has been given consent - 750 homes out at a LDA site will be built out by Barratt and Taylor Wimpey.
While it is good news for the market and of course, the ongoing regeneration of the Thames Gateway, this development is an importantly sign of things to come in the future of housing development, at least in the short term.

In this case, the LDA owns the land and has the long term interest, and the housebuilders are involved purely on a contractual basis. This private-public partnership is set to become the norm - as shown by the Barratt launch in Bow I went to last week, where the land is also owned by the LDA. Barratt even wrote to all the London boroughs around Christmas time, asking to be given sites to build out. (Listen to Alastair Baird, the London chairman of Barratt, talk to us on our Friday podcast a few weeks ago)

The Homes and Communities Agency has also made a great deal out of partnerships between private housebuilders and public agencies as being the way forwards. In some respects, everyone is the winner - local authorities meet targets, housebuilders keep busy, retain staff and get a contractual fee at the very least, and most importantly, new housing supply keeps rolling over.
However, the risk of pumping public money into schemes built by private companies during a global recession is not negligible. After a terrible year for housebuilders, public bodies need to ensure they steer clear of expensive, unviable, unattractive schemes - the likes of which were far too common in the boom years.

The new sale and rent back regulatory scheme, which comes in from next week (1 July) will dramatically reduce the number of SRB operators in the market, a lawyer told me this morning.

That's fair enough you might suppose - the regulatory fees will range from £1,500 to £12,000 per SRB company - and after all, dodgy operators are bound to be put off by a scheme that is trying to weed them out. A lot of the cowboys will just retreat underground, decide it is no longer worth the bother, and the residential world will be better off for it.

But when he predicted that the number might drop from 1,000 players in the market to only 25 by August, I was genuinely surprised.
The government might have said the sector was full of "dodgy deals", but unless my maths is wrong, that means only 2.5% of SRB companies or investors are happy to continue their business after paying the charge, to meet minimum standards, and to be openly and formally regulated.
It makes you worry about the standard of the other 975.

It was interesting to go along to the launch of Phase One of Barratt's redevelopment of the St Andrews hospital site in East London last night.

The Bromley-by-Bow patch of land is massive, and it is always quite thrilling when you see a massive block like that rising out of the ground.  The development is, of course, made up of flats not houses, and to be honest it looks very much how you might expect a Barratt development to look. It must also be said that most of the housing around it is also flats, so one might wonder what makes this one any different.

Barratt, of course, is displaying optimism, although one senior sales director admitted "We probably wouldn't have spent so much on the marketing suite in the boom years" to me, as swankily-dressed waiters offered me another glass of champagne and a plate of hors d'oeuvres.

Nonetheless, there might be something in their claim that the scheme is coming up at the right time for the market. Flats were selling at just under £200,000 last night, and considering the land is right next to a tube station, that doesn't seem unreasonable for trendy East London. The area needs a lot of TLC, of course, (the scheme proposes an on-site police station, of all things) and I have no doubt Barratt would have done quite a few things differently in an ideal world. The land belongs to the LDA, for example, which is insisting on 50% affordable housing. The building of the 27-storey tower block on the site has also been pushed back to an anon date, after the two other phases are built out and the market has picked up.

Nonetheless, Barratt has been talking some positive talk in the last few weeks about new models, and lateral thinking to keep the business running. And based on what Alastar Baird was saying last week, I think it is genuinely only a matter of time before we see a Barratt Student Homes model pop up on ourstreets.

And so the long-running saga around Grainger's £70m redevelopment of a Latin American market in North London finally reaches the final stretch.
The unhappy developer and Haringey council have been battling an army of local traders and residents since plans were first drawn up way back in 2004.
The long-suffering David Walters, development manager of the scheme, has spent a great bulk of his time over the last twelve months negotiating with market traders - and this includes hiring translators because most are Peruvian or Colombian and Walters is, sadly for him, not fluent in Spanish.
The market is run-down, but they love it, and Grainger's plans to put a generic shopping centre there was not good enough for them. Even Boris Johnson waded in to the debate. So, the plans were redrawn, space for a new market was made (presumably at a hit to the developer's profits) and traders agreed with a host of compensation agreements - rent reductions, the allocation of temporary space, etc etc. So far, so good.
Most now seemed happy, certainly Boris was placated, and the plans got the go-ahead last November.
Full steam ahead, you might think. But for the harassed Grainger, there was another bridge to cross first - the Wards Corner Coalition filed for a judicial review of the scheme in April, and this was finally heard this week.
They had three main grievances - that the planning committee was not given full access to the decisions on affordable housing (there isn't any); that the scheme would have a negative impact on the racial diversity in the areas; and the final personal attack that the chair of the planning committee, Sheila Peacock, was biased in approving the application.
The first charge against the council's affordable housing toolkit was dropped prior to the review, but the others - racism and bias - stand. This is what the judge will now consider before announcing his decision in the next two weeks.
Grainger must be wondering if it was really all worth it.

The market as it is now....

and Grainger's plans...

Some more evidence this afternoon for the optimists talking about the now infamous green shoots. The National House Building Council (NHBC) has posted figures of 19,286 applications for new homes in the last three months - an increase of 8% on the previous rolling quarter.
Of course, there is always another side to the story. The figure shows a massive drop of 43% on last year, and that soars to an almost 60% drop if you strip out the applications from the public sector and compare just the levels of private homes (11,062 in the last three months). London has fared particularly badly with the number of new social and private homes registered down by 62%, the worst region in England.
But nonetheless, this is the third month where the resi market can welcome some positive news over new starts, and one of several points that suggest a little cause for cheer, including some more tentative good news from the RICS earlier this week.
Perhaps best to forget the drop of 25% in completions, and the government's targets of 240,000 new homes each year by 2016.

Nice new image here of the massive Barking Riverside scheme, which got the go-ahead last night for the first 4000 homes.
The £1.9bn development will eventually comprise 10,800 homes in a giant new community in the Thames Gateway, over a 370-acre site. Bellway is working with the HCA to get the scheme out of the ground (isn't everyone, it seems?) and so start on site seems likely to begin as forecast in December this month.

 More interesting news just coming out of the HCA (or the "ambulance on the horizon, racing to save the burned developers of battle" as the dashing Kevin McCloud described them last week. Now I can't think of any other analogies for them but that, I'm afraid.)

Sir Bob Kerslake has announced this evening that the Agency has set up a Housing Finance Group, to be headed by Nigel Hugill, former big boss at Lend Lease.

The HCA said the group will look at three areas (of which the first is the most interesting). Read what you will into the text copied directly from their press release below on the Group's aims and read my EGi story on it here....

The Housing Finance Group will review and explore the following areas:

• Financing continued private sector development - including stimulating mechanisms which will allow returns on capital employed to reach a viable level for private sector developers, as well as exploring the entry of new players with private sector provision including a longer-term investment in place building. This area will build on the HCA's Private Rental Sector Initiative and explore systems used by utility companies in assessing long-term investment; 
• Ensuring finance is available for the affordable housing sector - including guidance for renegotiating S106 deals, the future of delivery through the HCA's national affordable housing programme, and new forms of future finance, with the HCA and local authorities acting as contractor clients; and 
• Funding improvements to existing stock - including Decent Homes and mechanisms to incentivise improvements in private sector housing.

I went to an interesting breakfast briefing this morning at Knight Frank's office in Baker Street. After going through one of the strictest security regimes outside of Canary Wharf, I met with some of the agent's resi guys in a sixth floor office to hear the results of some research they have just completed into the effect of the new tax regime on the prime property market in London.

I think I am a little naïve, but it always seemed to me that once you were really rich, a little extra tax wouldn't make that much difference, really, even as much as a 10% hike. What KF says their report has thrown up is more a concern about damage to the reputation of London as a "place to do business".

Although, they also record that around 1,000 rich individuals and "non-doms" have sold their London pads because of the higher tax rates, and moved abroad - predominantly to Switzerland and Monaco - and 31% more are "actively considering" relocating themselves too.

But not to worry, says Liam Bailey, research guru at KF, there is enough demand to fill this gap, and more then enough people want to move here because of good schools and opportunities. Apparently the Russians and the Kazakstans are the ones descending on Kensington and Chelsea at the moment - and if they want to be in that area enough and there are no homes, then they are willing to rent, too.

Also interesting to note this morning was how upbeat the agents seemed. Agents talking the market up might not be news, but looking at some of the figures they presented, it does seem as though the second hand market is starting to claw its way back, albeit from a virtual standstill.

I've heard Richard Blakeway and David Lunts deliver the same speech twice in two days, and I'm still left in the same state of bafflement.

At both the EG London Development Conference yesterday and the NLA Delivering Homes for London conference today, which I've just got back from, Blakeway spoke about bringing in space standards.

I know, I know.

Boris has been going on about "Homes for Hobbits" since he arrived on the City Hall scene without much happening. I was at a press conference last July when he first enthusiastically declared that he would make private developers build bigger homes. Afterwards, his press team frantically scurried about correcting journalists that actually, it was only affordable homes which would have to conform to space standards. In fact, they already do have to comply with space standards. So, nothing new after all.

But, in this speech I could probably recite to you by now, Blakeway said that they were going to introduce Parker Morris Plus 10% as the basic standard. (Parker Morris standards are based on the recommendation made to government 47 years ago that a one-bedroom flat should be at least 490 sq ft, a two-bedroom flat 623 sq ft and a three-bedroom semi 792 sq ft.)

This could represent a massive increase, and prevent a lot of the rabbit-hutch building of recent years - I live in a very small flat, and the possibility of spreading out a bit has obvious appeals - as long as the costs aren't passed on to the hard-done-by buyer.

But when pressed later on at the conference, it turns out that in fact this only applies to affordable housing once again - the Mayor's office and the HCA seem to get surprisingly free-market when it comes to the moral right to impose space standards on private developers. And in fact, Parker Morris plus 10% standards is what the now-redundant English Partnerships had previously enforced anyway.

However, there was more hope this time for those campaigning for bigger homes.

Blakeway was adamant today when he said that although he could only apply these rules to affordable housing without changing the London Plan, they would be "creative and uncompromising" about the way that definition was applied.

So, no homes that are on public land, receive public funding, or are in any sort of joint venture with the HCA or public bodies, will be eligible for that cash unless they meet Parker Morris plus ten standards.

A big ask for hard-pressed developers, and a scary one in a world where many housebuilders are forced to go cap in hand to the public sector in a way they could never have foreseen at the time of planning.

Lovely new images of Treasury Holding's reworked design at Battersea Power station were unveiled today by EG. The scheme still comprises a massive number of homes in a key regeneration area (around 3,700) although the massive 250m glass chimney has been dropped - not that anyone will miss it too much, I imagine.

Have a look and see what you think...(and read EGi's story on it here)

Today the government watchdog the FSA has announced its proposals for regulating sale and rent back transactions - the sector it deemed to be so bad that regulation was needed, and quick.

Following the OFT's report into consumers being ripped off at their most vulnerable, the FSA plans to force companies to comply with minimum standards and bring the SRB firms under their jurisdiction. This will give them the teeth to bite when a firm has abused the system, and once the full regulation is brought in (this is only the emergency, interim regulation you understand) there might well be a minimum standards exam for SRB staff to take.

See the full FSA document here, our EGi story here, and a nice analysis of the 18-month saga from Inside Housing here

"They're certainly getting desperate", another journalist said to me as we left a press conference held at Labour Party headquarters this morning.

Ahead of the elections this week, we had been summoned together to hear from Yvette Cooper, now chief secretary to the Treasury, and current housing minister Margaret Beckett in a low-lit press hall.

The conference followed a rather obvious theme - Labour policies: good, Conservative policies: bad (with the press release helpfully labelled in red and blue too, just in case). You can predict the sort of thing that was said, and there wasn't much between the political rhetoric to get excited about.

The two minsters said their party's policy of spending, rather than cutting like the Tories propose, will help Britain to come through the recession "sooner and stronger" and the idea of a Conservative government should leave the nation "chilled".

But underneath the proud words, the cracks were beginning to show.

Both looked tired of questions about expenses, and paled on talk about Labour falling to third or fourth position in the elections (though apparently that still wouldn't warrant holding a general election). Neither had much of reassurance to the property industry, both looked weary, and they offered fairly hollow-sounding endorsements of their colleagues over the expenses scandal.

When pressed over the dreaded eco-towns, Beckett said that she wouldn't rule out having no eco-towns at all (after all the drama!) if the standards weren't good enough. This get-out clause seems to me the start of talking the idea away.

Today, they certainly seemed like a party on the edge, and I was considering on my way back to the office how much it really mattered what Beckett said or thought about the housing market. She's unlikely to still be responsible for it in twelve months time.

An interesting little row has broken out between two key monitors of the London resi market.

Agent Savills has put out a thinly veiled attack on a report by London Residential Research's report, which can be read here - covered by EG a few weeks ago.

The gloomy Red Book report said there had been a "horror show" in the capital's residential market over the last year, with nearly 10,000 homes left empty.

Not the case, says Savills, citing a mere 916 as the number of completed unsold units.

Although, as somebody much wiser in property once told me - when the agents start saying the market is on the up, there's probably about six months still to go.

The difference between the two conclusions is immense - I've copied the Savills' statement below for you to make your mind up on....

UNSOLD FLATS WILL NOT DEPRESS THE MARKET FOR LONG

Tales of our cities being full of vast tracts of empty, newly built apartments for sale are misleading, and commentators who think that an oversupply of new housing will depress the market and keep prices falling across the board are wrong, says Savills Research. Their latest analysis shows that recent reports that 10,000 newly built units lie unsold and empty in London overstate the reality by a factor of ten, according to Yolande Barnes, head of Savills Research.
Figures for the first quarter of this year show that there are 29,000 units for sale and/or under construction, so-called 'committed stock', in the greater London area. Of these, one-third have already been sold 'off plan' and another third are not yet for sale. The remaining 9,844 new units that are currently for sale are mostly being sold 'off plan' and are not yet complete. Only 916 of the units are habitable and on completed schemes and can therefore be described as standing empty and available.
A very conservative estimate is that, in the context of 2008 rates of new build sales, this represents a mere two months' supply. The balance of units for sale that remain under construction represent the supply for a further eighteen months at most. Some of them are on schemes that were always planned to be phased over a number of years and will take longer than this to complete, while a few are on schemes where construction has been temporarily halted.
"These figures highlight the difference between committed stock (that is units that have to eventually be built and completed) and 'ready to occupy' stock (that is units that are complete and for sale)", says Barnes. "Both of these figures, when put into context of the number of units that people buy in London in a year, point to a looming shortage rather than a looming glut of properties in many boroughs - although there are notable exceptions where a potential oversupply is an issue."
"That there are issues for developers in a market constrained by the availability of credit, both for developers and buyers, cannot be denied", says Barnes. "However, in a market that is beginning to see a restoration in the balance of supply and demand - an indicator of the very early stage in its recovery - and with forecasts for housing delivery in London well below anticipated demand, it is important for statistics regarding new build units to be read accurately and in context."