Carter Jonas New Homes Residential View - Winter 2016

2
TO OUR WINTER 2016 EDITION OF
NEW HOMES RESIDENTIAL VIEW.
It has been well documented that we are still falling some 100,000 new
homes short of what is needed to satisfy demand and although there has
been some progress made in recent years, reaching the almost mystical
target figure of 220,000 new homes in a year seems a very long way off.
In this edition we have focused on answering three of the most important
questions regarding new home delivery in England. What are we building?
Where are we building it? And does it fit the local market?
Our experienced new homes teams across the country have a proven track
record of progressing residential development schemes, both small and
large, from inception to successful sale.
Please contact a member of our team (contact details at the back of this
report) to discuss your requirements, we would be delighted to help you.
Rory O’Neill
Partner, Head of Residential Division
Residential Sales

carterjonas.co.uk 3
Figure 1
English New Home Construction Starts & Completions Construction Starts
Construction Completions
Source: Department for
Communities and Local
Government
Analysing the recent and likely future performance of
the economy is difficult, given the lack of data covering
the period after the UK’s vote to leave the EU. Indeed,
there have been some very mixed messages.
While the Government has now said it will trigger
Article 50 by the end of March 2017, the overall
backdrop is one of uncertainty, as it may take
considerable time to establish a detailed framework
for a future UK-EU relationship.
Initially, in the weeks following the referendum, there
was a string of negative surveys from organisations
such as Markit, GfK, the RICS and the CBI. However,
more recent surveys have shown a rebound
in sentiment.
In terms of hard data, the Q3 GDP figure was a healthy
0.5% against 0.7% in Q2 and 0.4% in Q1, although
economic growth forecasts for this and next year have
been revised down. However, the consensus is that the
UK will avoid a recession.
The pound remains down by around 10% against
the major currencies – which seems to be feeding
through to stronger exports – but that means higher
prices and inflation has already started to rise. The
labour market is still strong, although confidence
has weakened slightly.
The August interest rate cut and additional quantitative
easing from the Bank of England were welcome and
should support the economy in the coming months.
GDP growth forecasts vary but the majority of major
forecasting houses suggest growth of around 1.6% in
2016, falling sharply to 0.7% in 2017.
The early data coming through post-referendum
suggests that values in the national housing market
appear to be holding up. However, it is still very early
days and evidence of true market sentiment is unlikely
to appear in the prominent housing market indices
until late this year. Transactional activity remains at
a historically low level, with most English regions
witnessing 20-30% fewer sales than normal. This trend
is most evident in London where some boroughs are
experiencing sales volumes at 50% below their pre-
2008 levels.
In the new homes market, we are still falling some
way short of meeting demand. The graph below
shows new home starts and completions. It clearly
illustrates that while construction levels have recovered
considerably from the 2007/2008 market downturn,
completions in the year to June 2016 are still around
15% down on the five–year average preceding
the downturn.
MARKET OVERVIEW
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Q12006
Q22006
Q32006
Q42006
Q12007
Q22007
Q32007
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Q12010
Q22010
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
5–year pre-crash, quarterly completion average
5–year post-crash,
quarterly completion average

4
is the significant lack of activity within the London commuter
belt. Given that this area is arguably experiencing the greatest
demand for housing in the country, it is easy to see why house
price appreciation has exceeded all other areas in recent
years. The map also shows that the greatest level of new home
activity is concentrated around the East Midlands and the East,
with the notable exceptions of coastal areas, which tend to be
constrained by limited infrastructure and weaker demand.
A more detailed analysis, down to town level, reveals that
Blackpool has produced the least new housing, relative to its
size. The table is dominated by areas in the North West, but
other notable inclusions are Brighton, whose location between
the English Channel and the South Downs National Park means
that it may be in this table for some time, and Enfield, whose
appearance on this list is less easy to explain.
Moving on to the most successful areas, the London boroughs
of Tower Hamlets and Greenwich are helping to alleviate
the chronic shortage of homes in London. With both areas
Source: Department for Communities and Local Government
Figure 2
New Home Construction
Percentage of new home construction by property size
1 bedroom
2 bedrooms
3 bedrooms
4 bedrooms
120%
100%
80%
60%
40%
20%
0%
WHAT, WHERE
What are we building?
As can be seen in Figure 2, in the last year, 1 and 2 bedroom
properties accounted for the lowest proportion of the total new
homes built for 14 years. In 2015/2016, 70% of all new homes
built had three or more bedrooms.
The difference between the average sold price of new homes
and that of existing ‘second hand’ property has also risen
sharply to its highest level in 14 years, with the premium
currently standing at 30% (see Figure 3). While the high
proportion of homes with three or more bedrooms may explain
this disparity to a degree, it is a trend that policy makers should
look to reverse. Historically, this premium has hovered around
the 25% mark.
Where are we building?
By analysing and comparing private new home construction
levels with existing private housing stock levels, we have
established relative construction activity in different areas. As
the heat map on page 6 shows, the notable pattern emerging
1991/921992/931993/941994/951995/96
1997/98
1999/0
020
0
0/0
120
0
1/0220
02/0320
03/0
4
20
0
5/0
6
20
0
4/0
5
20
0
6/0720
07/0
820
0
8/0
920
0
9/1020
10/1120
11/1220
12/1320
13/1420
14/1520
15/16
1996/97
1998/99
What type of new homes are we building,
where are we building them and are they the
right type of property for their local market?
These are three important questions that we
aim to answer in this report.
4

carterjonas.co.uk 5
Source: UK House Price Index
Figure 3
New Homes Vs Second Hand Homes
How much more is the average new home sold price vs the second hand average?
35%
30%
25%
20%
15%
10%
5%
0%
01January1995
01June1995
01November1995
01April1996
01September1996
01February1997
01July1997
01December1997
01May1998
01October1998
01March1999
01August1999
01January2000
01June2000
01November2000
01April2001
01September2001
01February2002
01July2002
01December2002
01May2003
01October2003
01March2004
01August2004
01January2005
01June2005
01November2005
01April2006
01September2006
01February2007
01July2007
01December2007
01May2008
01October2008
01March2009
01August2009
01January2010
01June2010
01November2010
01April2011
01September2011
01February2012
01July2012
01December2012
01May2013
01October2013
01March2014
01August2014
01January2015
01June2015
01November2015
01April2016
benefiting from a healthy pipeline of forthcoming schemes,
including Wood Wharf and Greenwich Peninsula, we expect
the boroughs to maintain their position in our 2017/2018 table.
Other areas worth mentioning are Corby in Northamptonshire,
whose private housing stock has grown by a considerable 7.4%
in the previous five years, and Cambridge, which is experiencing
some of the greatest demand outside of the capital.
Does it fit the local market?
Is the right type of private property being built for the area
and its residents? In a national property market where housing
affordability for local young residents is a major issue, this is
one of the greatest concerns. To answer this sensitive question
we have examined how close the average new home sold price
is against the average second hand house price (the existing
housing stock) in the area, as shown in Figure 6.
We analysed the data for all of England’s Metropolitan Districts,
London Boroughs and Local Unitary Authorities, with some
interesting results. The league table that ranks the lowest new
home value against the existing stock is dominated by areas
that are experiencing high levels of demand and, consequently,
affordability issues. This shows that the market is successfully
delivering (relatively) affordable new homes in these areas,
even if existing high prices do not make it feel this way to local
residents. A good example of this is Oxford, where affordability
issues are the greatest outside London. The average new home
price is some 13% below the existing average.
At the other end of the scale the top two areas that are
delivering proportionately more expensive new homes are the
commuter towns of Harlow (Essex) and Gravesend (Gravesham,
Kent). This could be a sign that developers in these areas are
targeting the London outflow buyers, rather than catering for
the needs of local residents.

6
Rank Area Increase
1 Tower Hamlets 9.3%
2 Corby 7.4%
3 North West
Leicestershire
7.3%
4 Hinckley and
Bosworth
6.5%
5 Greenwich 6.1%
6 Telford and
Wrekin
6.1%
7 Dartford 5.8%
8 Chorley 5.7%
9 Cambridge 5.4%
10 South Norfolk 5.4%
Rank Area Increase
1 Blackpool 0.2%
2 Hyndburn 0.5%
3 Wirral 0.5%
4 Brighton
Hove
0.6%
5 Harrogate 0.7%
6 Stockport 0.7%
7 Pendle 0.7%
8 Enfield 0.7%
9 Westminster 0.8%
10 Barrow-in-
Furness
0.8%
Rank Area Difference
1 Harlow 112.1%
2 Gravesham 97.6%
3 Preston 95.5%
4 Rochford 90.2%
5 Middlesbrough 88.0%
6 Nuneaton
Bedworth
84.2%
7 Sunderland 80.1%
8 North Tyneside 80.0%
9 Halton 78.2%
10 Wigan 73.6%
Rank Area Difference
1 Surrey Heath -25.6%
2 East Dorset -18.9%
3 Richmond
upon Thames
-13.7%
4 St Albans -13.4%
5 West Dorset -13.1%
6 Canterbury -12.9%
7 Oxford -12.5%
8 West Devon -12.2%
9 Kensington and
Chelsea
-11.6%
10 Bournemouth -8.7%
STOCKGROWTH
Figure 5
Most Active New Home Areas
Increase in local private new home stock levels in the previous 5 years
Top 10 Top 10Bottom 10 Bottom 10
Figure 6
Average New Build Price Vs Average 2nd
Hand Price
How much more expensive are new homes compared with the local average
Figure 4 - Heat Map
The five–year growth rate
of private housing stock
Source: Department for communities and local government
5-Year Growth (%)
1
1–3
3–4
4–5
5–7
7–8
8–9

carterjonas.co.uk 7
Investor Area Focus - London
Prime Central London: Kensington Chelsea
• Average house price: £1,298,651
• Average new home price: £1,147,555
• Private new homes currently in the pipeline*: 2,759
• Social rented intermediate homes currently in the pipeline*: 983
• Average gross rental yield: 3.3%
• 12–month house price appreciation: -3.0%
• Average new build £ per square foot achieved in 2016: £1,906
• Rental values in the year to Sept 2016: +1.3%
• Average 1 bed private rent: £2,223pcm/£513pw
• Average 3 bed private rent: £7,931pcm/£1,830pw
• Percentage of housing stock in the Private Rented Sector: 38%
Outer Prime London: Wandsworth
• Average house price: £618,417
• Average new home price: £642,693
• Social rented intermediate homes currently in the pipeline*: 2,012
• 12–month house price appreciation: +9.3%
• Average new build £ per square foot achieved in 2016: £864
Greater London: Hillingdon
• Social rented intermediate homes currently in the pipeline*: 402
• Average new build £ per square foot achieved in 2016: £524
Investor Area Focus – The Regions
The North: Harrogate
• Average new build £ per square foot
achieved (2016): £301 (town)
• Average 1 bed private rent: £575pcm/£133pw
• Percentage of housing stock in the
Private Rented Sector: 19%
The East: Cambridge
• Percentage of housing stock in the
Private Rented Sector: 28%
The South: Winchester
• Percentage of housing stock in the Private Rented
Sector: 15%
MARKET
April’s introduction of a 3% stamp duty surcharge on all
second home purchases seems to have achieved its aim
of cooling the investment market. The latest data from
the Council of Mortgage Lenders shows that Buy-To-Let
mortgage advances have fallen by around 50% year-on-
year in the four months since its introduction. However,
recent anecdotal and survey-based evidence seems to
suggest that appetite is starting to return to this area.
With most new build apartment markets being heavily
reliant on demand from investors, this trend will be
warmly welcomed by developers and agents alike.
*As of July 2016, unless otherwise stated
Sources: Carter Jonas Research, UK House Price Index, ONS, Molior London, VOA, 2011 Census (projected)

© Carter Jonas 2016. The information given in this publication is believed to be correct at
the time of going to press. We do not however accept any liability for any decisions taken
following this report. We recommend that professional advice is taken.
Follow us on Twitter,
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Heather Littlejohn
Partner, Head of London New Homes
020 7518 3255 / 07788 296653
heather.littlejohn@carterjonas.co.uk
Lisa Simon
Head of Residential Lettings
020 7518 3234 / 07976 761721
lisa.simon@carterjonas.co.uk
Mark Wood
Partner, Eastern New Homes
01223 403331 / 07711 078857
mark.wood@carterjonas.co.uk
Lee Layton
Research Analyst
01604 608212 / 07768 308737
lee.layton@carterjonas.co.uk
Marika Brundell
Associate, Eastern New Homes
01223 403330 / 07730 140079
marika.brundell@carterjonas.co.uk
Darren Yates
Head of Research
020 7518 3343 / 07788 345915
darren.yates@carterjonas.co.uk
Anne Haggas
Head of Northern New Homes
01423 707817 / 07818 522884
anne.haggas@carterjonas.co.uk
Claire Johnson
Associate Partner, Head of Southern
New Homes
01865 404440 / 07584 470919
claire.johnson@carterjonas.co.uk
OUR EXPERIENCED NEW HOMES
TEAM HAS A PROVEN TRACK
RECORD IN PROGRESSING
SCHEMES, BOTH SMALL AND
LARGE, FROM INCEPTION TO
SUCCESSFUL SALE.
James Bainbridge
Partner, Head of Planning
Development
01865 404437 | 07887 834070
james.bainbridge@carterjonas.co.uk
Rory O’Neill
Partner, Head of Residential
01672 519705 | 07801 666120
rory.oneill@carterjonas.co.uk
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