Slowly Does It
Value Versus Volume
The changing value of new homes offers insights into the industry.
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When examining the pace of recovery of new home sales, there is a distinct gap between the change in the number of new homes sold and the total value of new homes sold. The recovery in volume has been slow, 40 per cent growth in the last five years, but the increase in the total value has been much faster, twice that rate, at 80 per cent. The total value of all the new homes sold in 2014 was 23 billion, just 18 per cent below the previous 2006 peak, whereas in numbers of homes sold we’re 40 per cent down. The discrepancy between value and volume can be explained by two big changes in the industry.
First there has been a shift southwards. Starts of new homes in London are currently at about 80 per cent of pre-crash levels and at between 70 and 80 per cent across the rest of the South. Across the remainder of the country the number of starts are only around half levels seen in 2006 and 2007 despite support from Help to Buy. The changes in new home sales reflect market dynamics across the country. More new homes have been built and sold in the South, because these markets have seen prices and often activity recover faster and further than the rest of the country. The markets where the supply/demand balance tends to be in favour of the vendor have offered more opportunity for builders at a lower risk.
Second the product has changed. Flats accounted for over half of all new homes sold in 2006 and 2007, but just a third in 2015 so far. That means the average size of new homes has increased overall, a home built in 2014 averaged 1,200 square feet, compared to a 2008 low of 950, mainly because of this shift towards houses and away from flats.
The shift to houses, often built in the suburbs and wealthier areas of the country, also show a change in target market. There’s over £3.5 billion of housing wealth in the UK according to the ONS, with most of that held by older households, some way up the housing ladder. House builders have been targeting their product at these customers, less constrained by credit issues than their first time buyer counterparts.
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