U.K. Braces for Historic Decline in New Home Sales, Driven by COVID-19
Based on new analysis by global property consultancy Knight Frank, Covid-19 and the knock-on impact of the government lockdown, will result in 56,000 fewer homes being delivered this year, representing a 35 percent drop.
In London, new housing is set to hit its lowest point since 2014, with 8,000 fewer homes forecasted to be built compared to the five year private housing delivery average, which saw 14,405 completions. Whilst home building by private developers makes up just one portion of overall housing delivery, the drop will prove a significant setback to the Mayor of London's yearly target of 55,000 new homes.
Knight Frank's review of pipeline data suggests that (as of 17th April) work had been suspended on residential schemes capable of delivering nearly 250,000 new homes across the UK. Whilst some of these will be on sites at various stages of completion, and on projects due to be delivered over a multiyear timeframe, it is clear that the building hiatus will have a sizable impact on the number of homes built in 2020 and beyond.
Justin Gaze, Head of Residential Development Land at Knight Frank, said: "Faced with supply chain challenges and a national material shortage, developers are under increasing pressure to adhere to tight social distancing controls, while also coping with an ever dwindling availability of skilled workers. This has cast a dark cloud over the capacity for homebuilders to deliver at scale and speed."
Last week marked the start of some homebuilders setting out their strategies for a phased return to site construction and operating, albeit with strict social distancing protocols. In most cases this will mean a slow and steady return to activity. Knight Frank noted that; "this is not simply a case of flicking a switch back on."
The government-imposed lockdown has been extended for at least another three weeks when it will be reviewed again on 7 May. Official guidance advises that construction sites can stay open, as long as social distancing protocols are adhered to. Many homebuilders, however, have opted to shutter sites through the lockdown to protect workers, as well as a result of supply-chain difficulties.
Gaze continues, "Now is the time for the government to intervene and support the private sector in getting building again. There needs to be a pragmatic approach. Extending Help to Buy and relaxing planning regulations to give developers greater flexibility on Section 106 and Community Infrastructure Levy (CIL) payments would be greatly welcomed. Introducing a Stamp Duty holiday and streamlining the conveyancing process would also be a major stimulus. These measures would no doubt act as a real driver for the wider UK economy; helping to create jobs, new housing and ultimately receipts for the treasury via increased liquidation in the market."
Indeed, even under the assumption that homebuilders recommence construction in early to mid-May, getting back up to speed will take time. There are a myriad of issues related to the supply chain, for example, with question marks over the availability of building materials, as well as delivery, distribution and labor.
Oliver Knight, Research Associate at Knight Frank said, "More intangibly, consumer sentiment will also impact recovery, and the fact remains that homebuilders will only build what they can sell. In the short-term, this will mean giving priority to restarting and completing sites where there are existing customer orders.
"Of course, the key question which will determine the impact is 'how long'. If Covid-19 disruption is short-lived that could mean the UK can get back on track relatively quickly. However, the longer the disruption the greater the pressure on the market and longer the recovery."