As the NHBC reveals the scale of the fall in private housing activity, Richard Donnell looks at how developers are responding

There is no end in sight to the uncertainty over the housing market, and all indicators of new-build activity remain weak. The level of site visits and reservations continues to slide, and developers are responding by increasing the use of sales incentives and cutting back on output to support pricing levels.


The NHBC data below shows a falling numbers of private housing starts compared with the previous year, although overall starts are down by a smaller amount as developers bring forward the section 106 affordable elements of schemes while they hope that the outlook for the wider market improves. It will be Easter before we know the full picture.

In the mean time, lenders are becoming increasingly concerned that the level of incentives offered to purchasers may be hiding the falling 鈥渞eal鈥 price of new-build housing, something that could lead to further changes in the availability and terms of finance for new housing.

Despite the recent cut in interest rates it seems unlikely that there will be any sizeable bounce-back in demand for housing. Demand does still exist, but buyers are more price-sensitive and it is turnover levels rather than prices that are expected to suffer the greatest falls over 2008.

The impact of the weak market on developers will vary from one scheme to another. So far, flats for young people in city centres have fared worse: for example, Taylor Wimpey postponed its Green Banks scheme in Leeds before Christmas.

Incentives offered to purchasers may be hiding the 鈥榬eal鈥 price of housing

In some cases a project may need to go back to planning, while in others housing associations may provide a willing buyer. For most, though, there is likely to be sufficient headroom to maintain incentives and sales volumes while still making a decent return.

Nevertheless, the potential to increase levels of housing output seems low. With development values heading sideways, at best, and costs rising as fast as ever, downward pressure on land values seems inevitable.

These pressures will also mean that development on land bought near the top of the market last year may not stack up.

Given the government鈥檚 overriding policy priority of increasing housing supply, it will be under pressure to make sure land for housing comes through at a sufficient rate to keep development on track.

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