Savills : Housing development must adapt to build future resilience

• New homes delivery expected to total 212,000 in 2020/21, 17% down on the previous year
• Phasing out of Help to Buy a particular challenge for the sector
• 30% of new build sales are to young families, many using Help to Buy
• Analysing owner occupier sales, the report identifies an opportunity for:
• 4,900 more homes per year catering for 40-60 year old households
• 3,800 more homes per year for the over 60s
• Additionally there is the opportunity for 5,400 more new houses a year up to 1,100 sq ft across the whole sales market.
• Higher ESG standards a prerequisite to achieving future resilience, but this will put pressure on land values

After an initial slowdown in construction, the new build sector has recovered well since lockdown began to ease, supported by the strong rebound across the housing market as a whole.

But, while momentum remains positive, there are clear headwinds for the economy and for employment that will weigh on the market, Savills says in a new report published today titled New homes: building resilience. New build faces the additional challenge of the planned tapering and ultimate withdrawal of Help to Buy in 2023, so the sector needs to adapt in order to retain and grow market share, the firms says.

Savills estimates that 212,000 homes will be built in the year to March 2021, 17% fewer than in the previous 12 months. But with starts running at just 47% of pre-Covid levels, there is a significant risk to 2021-2021 delivery unless housebuilder confidence improves.

'The development industry faces three major challenges: meeting buyers' evolving priorities, adapting to changes to Help to Buy and ensuring that supply is not adversely disrupted by Covid-19 and the resulting economic challenges,' says Dr Lucy Greenwood, Savills residential research director.

'In the private sales market the mix and design of what is built will need to adapt to meet changing preferences and budgets, and appeal to a broader range of buyers while retaining existing buyer groups. To meet targets, delivery of all tenures will need to increase, including affordable, forward-funded build to rent and homes for the over-55s.'

Savills suggests that to reach the 300,000 target by the mid-2020s across England, delivery will need to recover to 2019/20 levels and add a further 18%.

Help to Buy has contributed to significantly boosting new build's share of all home sales, from 10% between 2010 and 2012 to 15% in 2019, allowing many people to get on to the housing ladder or buy a larger property than they might have bought in the second hand market.

While delivery across all tenures will need to increase to meet the Government target, the report analyses in detail the profile of new build buyers compared to second hand home buyers to identify where the opportunities to increase new home sales and delivery lie.

Size and affordability are key

Average new build house sales tend to be larger than second hand ones, indeed they are on average 6% larger than pre Help to Buy. Over the past three years the average new build house sold was 18% larger than the average second hand house (1,120 sq ft vs 950 sq ft).

Families: Young families are the most common buyers of new homes (accounting for 30% of sales). They are also the greatest users of Help to Buy, so most exposed to the tapering and ending of the scheme. This group will need family housing they can continue to afford in areas with good primary schools, play areas and parks.

While this group have the same incomes as those buying second hand, they typically buy a home that is some 8% bigger than those buying second hand and 22% more expensive. Without Help to Buy, lower income young families will be unable to afford a new build home unless there is comparable financial support. Providing affordable family homes in areas with good primary schools, nurseries and parks will be vital.

This group typically buy a 1,000 sqft home when buying new build, but our analysis shows that in terms of houses, this part of the market is relatively undersupplied compared to the second hand and there is the potential to build 5,400 more new houses per year up to 1,100 sq ft.

The same principle applies to established families in the 41-60 age group, who typically pay 21% more for a new build home than a second hand home, many using Help to Buy to enable the move.

Older, more affluent households: New build homes account for just 7% of homes bought by singles and couples aged 41 to 60. They tend to be more affluent households and the homes they buy are 17% larger than the same group buy in the second hand market. Increasing the new build share of homes bought by this group to 10% would create demand for 4,900 more new homes a year.

Similarly, just 7% of homes bought by the over 60s are new build. They account for just 7% of all new build owner-occupier buyers, making them the smallest new build buyer group. Like other buyer groups, they are attracted to locations that offer a strong community and local amenities but access to health care are amenities are particularly important to them. If 10% of this group were to buy new build rather than second hand that would equate to 3,800 additional new sales a year.

'There are real opportunities to broaden the demographic of new build, but this requires new homes to be built with appropriate layouts and in environments that are as or more appealing than those in the second hand market,' says Lucy Greenwood. 'In addition, to increase resilience to changes in market conditions, particularly post Help to Buy, developers should also be looking to deliver a range of tenures including forward-funded build to rent homes and income-generating uses alongside homes where appropriate.'

Resilience requires ESG focus

Developers will also need to look beyond Covid-19 and changing buyer budgets and preferences, the Savills report says. In the future developments will need to be more energy efficient, sustainable, mixed, flexible, well-connected places which promote health and wellbeing.

'Achieving resilience will require developments to have higher environmental standards, greater social value and be mixed, sustainable places. With higher ESG credentials, there is greater investment potential albeit providing all this will put some pressure on land values,' Greenwood concludes.

To read the full report click here.

To listen to the authors of the report click here for the webinar.