Detached Home Building is Up in the UK: What are the Implications?
Estate Brokers, Investment Homes, Land Management
Detached homes are in high demand in Britain by “second stepper” buyers upgrading from their first homes. One step up the ladder allows new people on the first.
There are many variables in how the UK increases its supply of homes to meet the demands of a growing population. Government financing-support schemes (e.g., Help to Buy, Help to Buy Isa, Build to Let, etc.) are showing signs of success, as has the overhaul of the planning process. More recently, incentives for smaller homebuilding firms and an effort to increase the number of skilled workers to build homes have been introduced.
Investors from the private sector too have stepped up their efforts to increase homebuilding, such as when managers of capital growth funds file for land use changes with local councils. They turn unproductive property into residential neighbourhoods, generally because local employers want homes in closer proximity to workplaces.
A new wrinkle in the homebuilding scenario is that in 2014 the number of detached homes rose by 9 per cent over the previous year. This is part of a trend being followed by the National House Building Council (NHBC), which reports that 38,113 new build detached homes were registered in 2014, the highest absolute number in that category since 2004. A total of 145,174 homes were built, making detached homes 26 per cent of the total. Flats and maisonettes constituted 33 per cent of the total registered; semi-detached houses 22 per cent; terraced houses were 18 per cent; and bungalows were just 1 per cent.
This information was met with dismay in some quarters, with complaints that detached homes are more expensive, therefore they do not address the shortage of homes at the lower economic end. Further, because they consume more land they meet resistance from those who wish to limit building on green field and green belt areas.
But certain other variables of the housing market should be considered in this discussion.
These include how Shelter, the housing charity, routinely argues that all types of housing need to be increased. Reinforcing this idea were findings reported in a November 2014 article published by PropertyWire.com, the widely quoted global property new service. These findings, from a report from Lloyds Banks, include:
• Detached houses are the property of choice for homeowners ready to move up the property ladder from their first homes.
• So-called “second steppers” increasingly want four bedroom homes (31 per cent, up from 24 per cent in 2010).
• Homeowners in their first property are staying 19 months longer there than planned (most who want to move up have increasing incomes and family size, or want to add to their families).
• The typical gap between the sale price of a starter home and the purchase price of a second home is £58,400; second steppers fill this gap by savings (37 per cent) and overpaying their first mortgages (41 per cent).
The financing to build the larger, detached homes largely comes from private investment groups such as joint venture partnerships. As they work with local planning authorities to get approvals to build, they have to demonstrate that the demand for housing justifies what is being built. A local employer that needs middle- or upper-management employees needs the housing stock to match, for example.
Putting capital into housing serves the investor as well as the broader economy. Speak with an independent financial advisor about what needs financing and where - and what is likely to optimise your return on assets.
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