Who Buys New Builds?

by Mark Alexander

8:01 AM, 10th February 2017
About 2 years ago

Who Buys New Builds?

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Who Buys New Builds?

I would like to see some statistics over the last few decades to show how many new build properties have been purchased by private landlords vs owner occupiers. I suspect individual landlords will have purchased the higher percentage, but whatever the figures, I know for sure that a lot of them were snapped up by landlords. Who Buys New Builds

It occurred to me some time ago that due to Government policies to discourage private landlords, this could lead to less housing being built. If the latest Government crackdown on Buy-to-Let had occurred a couple of decades ago, based on this line of thought there would be less housing than there is today. On that basis the Housing Crisis would be even worse than it already is.

The counter-argument to the above is that if landlords hadn’t purchased the new builds then properties would be cheaper. However, I don’t subscribe to that logic. Would it have been viable for developers to have built all the properties they have if the property values hadn’t risen?

A knock on thought is what about new build affordable housing?

These are usually funded off the back of new developments, whereby Council Planning Departments only grant permission to build subject to a percentage of the new housing being made available to Housing Associations and the likes for “affordable housing” provision.

Therefore, my question is this; if Government continues to discourage housing investment by private landlords, will the numbers of new builds increase or decrease?

It seems now that Government are taxing landlords in order to fund the initiatives they are providing to people who wish to buy for owner occupation. Isn’t the availability of these initiatives simply fueling house price growth though? As we all know, when demand is higher than supply, people will pay as much as finances allow. Increase the availability of financing and price increases will naturally follow.

Government is also providing incentive’s to its corporate sponsors in the financial and construction sectors to “build to rent”. This is also being funded by taxing private landlords. Surely that will lead to displacement which isn’t sustainable?

What are your thoughts?



Comments

Ian Ringrose

12:15 PM, 10th February 2017
About 2 years ago

Personally I would like to see no stamp duty for any purchase that is completed before the roof is put on the property. (Or exchanged with the landlord putting down a none refunded deposit of at least 40%.) This would drive landlords to support developers at the time they most need the money.

A system of insurance will have to be put in for when (not if) a developer lets down a landlord – this could be modeled on ATOL with a legal requirement that any developer selling incomplete properties must be a member.

Mark Alexander

13:23 PM, 10th February 2017
About 2 years ago

Reply to the comment left by "Ian Ringrose" at "10/02/2017 - 12:15":

I like that idea Ian.

It could be applied to all new build purchases, regardless of whether it is for owner occupation or rental. This would seem to fit with current Government think that additional property of all tenures is required.

Clearly they have the ability to do it too on the basis that the tax take from the extra 3% SDLT levy was significantly more than had been anticipated.

In fact, the extra 3% levy was so much greater than projected Government could afford to introduce your suggestion AND scrap s24. Pigs might fly too!
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DC

15:31 PM, 10th February 2017
About 2 years ago

"The counter-argument to the above is that if landlords hadn’t purchased the new builds then properties would be cheaper."

I think it's difficult to guess why house prices could be worth more or less because there are so many differing factors in each area of the UK that govern what happens to them, but having previously bought new builds off-plan I know I paid substantially less than the market value at the time as a few years later I bought another one of the same, second hand, for 11% more than I paid for the off-plan properties and still got it for less than the original buyer paid for it.

On that basis, if pricing was the same across the UK then if Landlords weren't buying new builds house prices would be more expensive.

I suspect there is far more to it as I say and as a very general rule I don't think your analogy can really be applied across the board.

I don't think anything to do with house prices and finance matters in general is an exact science as a certain Mr Carney will admit to and if he doesn't appear to know what he is talking about most of the time then what do we know!

Gareth Wilson

19:59 PM, 10th February 2017
About 2 years ago

My personal view is that housebuilders are not so stupid as to have to rely on Government for instruction as to when and where to build new homes. Where there is demand there will be supply.

As with most things, the supply of new builds dwindles in response to the demand for new builds doing likewise. People stating that they aspire at some point in their life to own their own home does not constitute such demand. The demand for new build is driven by people actively seeking to buy new build.

The construction of new builds is down and this points to a significant fact: the builders are not building because the people are not buying.

Our population consists of a labour force that is increasingly mobile, people yet to settle into a long-term work/living arrangement, and people incapable of ever owning their own home. This is increasing the demand for rental accommodation relative to that for owned homes, and because of these market forces, during the last two decades the demand for new build houses from landlords has been increasing relative to that from owner-occupiers.

But as of the 2015 Summer Budget, the Government and local councils have engaged in an all out tax and regulatory assault upon landlords, destroying their confidence to invest and their demand for new build property. Construction levels are decreasing along with this demand.

The Tories are trying to doctor the relative demands for rented and ownable accommodation into an artificial split, with the media blaming homebuilders for the reduction in new builds when in reality it is the government that is at fault for having choked off demand.

These policies will not work, and will inflict damage upon the living standards and labour mobility of the United Kingdom population for as long as they are pursued.

Mark Alexander

20:17 PM, 10th February 2017
About 2 years ago

Reply to the comment left by "Gareth Wilson" at "10/02/2017 - 19:59":

Brilliant post Gareth, thank you! 🙂
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Ian Ringrose

0:11 AM, 11th February 2017
About 2 years ago

If we are every going to have a quality workforce along with investment in factories for off-site building we need to move away from our stop/go house building, where every few years most trades people doing site work lose their jobs.

Just at the time the first time buyers stops buying homes, the banks stop landing to landlords.....

H B

10:16 AM, 11th February 2017
About 2 years ago

"Would it have been viable for developers to have built all the properties they have if the property values hadn’t risen?"

In all probability, yes. Builders were building houses when property was worth half what it is worth today.

The actual cost of the construction has not risen much, but the cost of the land that it is built on has. And the value of the land is naturally linked to the value of the properties that can be built on it.

Unless the land falls so far in value that it would be more profitable as farmland, the economics will still work out for builders, even with slightly lower prices.

Mark Alexander

10:41 AM, 11th February 2017
About 2 years ago

Reply to the comment left by "H B" at "11/02/2017 - 10:16":

The general rule of thumb is one third for land, one third build cost, infrastructure and associated red tape and one third developer profit.

Accordingly I disagree with you.

Ian Clifford

11:49 AM, 11th February 2017
About 2 years ago

I have purchased new build, and also properties that were built less than two years ago.

I don't think the economics of new build work particularly, at least in the South East.

You have to be very careful as often new builds can lose value, I have seen many people get into that situation so I remain very disciplined about any purchase.

I have walked away from many potential deals for that reason.

In terms of the wider impact it's very difficult to determine the how the BTL market has impacted pricing, in my view very little.

The fundamental issue is lack of supply, especially in London and the South East.

Both Lettings and Estate Agents are experiencing record lows in terms of supply on their books.

This is driving up prices along with the continuation of low interest rates. We are now in a position where even a 2-3% rise in rates would tank the economy and lead to a severe recession.

Debt of all types is way too high and any increase would cause Government finances and the deficit to skyrocket.

This in turn would result in spending cuts and tax rises that would cripple the country.

We are entering a period of secular stagnation, with the prospect of stagflation, that is inflation without economic growth.

Don't forget that whatever is said about house building, we need 700,000 more workers in construction over the next few years just to maintain the workforce.

Ultimately the only thing that'll reduce prices is opening up more land for development and invest in the latest generation of pre-fabricated housing.

This is being pioneered by countries such as the Netherlands, which are also facing the same crisis we are.

Further de-regulation of pensions would also help, allowing savers to include residential property in their pensions in the same way you can with commercial property.

But in summary, nothing in reality is going to change.

H B

12:38 PM, 11th February 2017
About 2 years ago

Reply to the comment left by "Mark Alexander" at "11/02/2017 - 10:41":

The costs of labour and materials have not risen that much - the rule of thumb you refer to is a reasonable long-term average, but it does not mean that it is a constant.

Much like rental yields.

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