Flat or growth in the housing market – depends who you ask

A happy new year to you all. I hope you managed to spend some quality time with your family and friends. Seems a bit strange saying that as I already feel like 2015 has been going for a good month or so.

Well we ended 2014 on a bit of a low with house price growth pretty much grinding to a halt by the end of year and most predict this will continue in 2015. I am still optimistic for growth in 2015 in the regions as foreign investment moves outside the M25.

Nationwide shows that across the UK house prices were up 7.2 per cent over the whole of 2014, but in December prices rose by just 0.2 per cent on average. St Albans in Hertfordshire was the city with the strongest house price growth across 2014, with prices there rising faster than in London. The average house price in St Albans has jumped by 24 per cent over the year while the capital recorded a 17.8 per cent increase. St Albans – a commuters dream (or maybe not).

The general property economist would say that given price increases over the past few years that further growth is restricted. I would focus more on the nervousness given the looming general election. Think wider people, most house prices (particularly in the North) are still below pre-recession levels and there is always the following to put a smile on your face:

·    Both Hometrack and Savills predict price rises nationally of just 2 per cent in 2015 while Halifax and the RICS are both a little more optimistic, predicting rises of 3 per cent across the UK. Some are also saying Yorkshire will undergo the largest rises with 5 per cent. I think that is potentially a little too adventurous but somewhere in the middle around 4 per cent sounds good to me.

 

·    The election is likely to be a huge issue for all parties with some already waving their manifesto. Anyone remember that mansion tax? The Conservatives gave us all a positive shock by reforming stamp duty, which was good news for anyone buying a house less than £937,500 (so a lot of people).

·    So a mansion tax. The impact is difficult to say but the main focus will be on London, few homes up North are worth more than £2 million. Stamp duty was the real benefit. The stamp duty tax cuts on homes under £1 million could also improve demand for such homes this year. I say take advantage and make the move, particularly before interest rates rise – fix it now and enjoy some more space.

·    In 2014, we took advantage of the housing market to upsize and move further into the countryside and this is what a lot will do in 2015, mainly in the South with people cashing in on the capital’s huge price rises. With improved infrastructure, particularly trains, this may benefit the North with commuting times to the capital reducing and the cost of living being significantly cheaper.

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend

Lee

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2014 in a few words – pretty good year

This is my last blog of 2014. This time next week I will be preparing to jet off to the wintery slopes of Switzerland for a spot of skiing over the festive period. I leave the UK in a very good mood for three reasons:

·         It’s Christmas and I love the festive period;

·         Working with a business that has come along so much in such a short space of time; and

·         The market is doing a pretty good job at recovering.

Always surprises me how long data takes to collect in this digital age. The October results for construction were shared this week. Yes October! The goods news was that £6bn of contracts were awarded in October with 21% above the Midlands, so things are moving in the right direction. The Autumn Statement also provided a glimmer of hope with some large scale infrastructure projects coming down the line.

As shown below, the Yorkshire region took 5% of contracts but the south still dominates. Looking at the bigger picture, the number of construction projects within the UK in October increased by 5% on September, and is 1.9% higher than October 2013.

Now is that something to feel cheery about or not and it sort of replicates the sentiment of the industry. Having met with a number of businesses and intermediaries this week it is wide spread cheer. The order books are stabilising and growing, the bank balances (or debt balances) are looking healthy but (and it’s a big but) people are still nervous. Remember construction output in Q3-14 only increased by construction 0.8% and is still 8.2% below its 2008 level.

While the headline economic indicators continue to point to a strong outlook, there is increasing evidence of a slowdown in the Eurozone, particularly the German economy showing evidence of slowing growth. There was some evidence of a slowdown in the UK housing market but forward sales for major housebuilders remain strong. We are yet to see the impact of the recent changes to stamp duty, which can only help our housebuilding friends.

So I started feeling positive and finish feeling uneasy. The market and those within it have been burnt and it will take a lot to make us smile from ear to ear. The signs are there and we remain hopeful but this New Years the champagne will simply be a celebration with the family rather than the thoughts of a prosperous 2015.

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend, have a Merry Christmas and all the best for 2015.

Lee

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Stamp duty and residential REITS – what a week!

Awkward conversation with two friends yesterday, one had just completed his house sale and the other was delayed. Lucky sod having it delayed as it saved him a few thousand, unlucky the former.

The Autumn Statement brought a few bits of good news – housing benefited with the announcement of 13,000 homes in Bicester and of course from yesterday, stamp duty was reduced for 98% of the UK and the remaining 2% can probably afford it. This is a very positive move and certainly helps individuals get a foothold on the property ladder. But is it all really smiles and cheers this festive period. Based on the average house price you are looking at saying about £4,000 on stamp duty. That does not solve the problem of the deposit, which for some people can be four times that amount.

The problem is that housing/residential is booming across the UK and this is evident from the Mill Group preparing to launch a residential REIT. This is a new concept, untested in the market place. It certainly does sound interesting, but couple this with how it is funded – crowdfunding! Talk about reaching a wider investor base.

I discussed the concept with a couple of bankers who made it clear, they would struggle to lend to a residential REIT until they are proven – so why would you not use crowdfunding, it makes sense and provides people a place to put their cash where it earns more than in a bank account. My first pondering was that the money would be used to development stock in areas with demand, however they have taken the route of buying stock already out there. It’s a good start.

As the REIT prepares to list, with an ambition of raising £50m to invest and 10% share return, I want it to succeed but at the same time not. I like the UK for its “buy” mentality, people own their homes. The more European model of renting makes me wonder what do you leave behind when you leave this world.

I’d love to hear your thoughts on a residential REIT and stamp duty.

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend,

Lee

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Should you appoint within or from the outside?

A thought has occurred to me following a discussion with a client – can you really find the right person to work for you?

In the last week there have been some changes at the top for large businesses – Laing O’Rourke and Persimmon. The first has seen their European commercial director and managing director of Canada exit and additions including a former financial director of a Yacht business and a former chief executive of an M&E specialist. These are two contrasting appointments – one from the sector and one not. You could look at this as odd but at the same time it brings a fresh perspective as building a building could be analysed as building a yacht – the main difference is surely the size. Persimmon has likewise gone for an appointment in the industry.

So what is the best option – insider or outsider? At the core of every job is a set of skills that should lead to success and by boiling these down you do find that certain industries are very similar, the main difference sometimes is the contacts and experience will make the job that little bit easier. But do we all really want an easy life? Working with two clients in recent times has seen appointments from outside the industry and the fresh pair of eyes on the business has highlighted areas where the strategy can be made stronger – surely this is a good thing?

You end up back at the skill base. I have frequently said that a construction or property business is unique to other industries, based simply on specific points that only tend to occur in the industry. But strip it back, you offer a service/product to a client which you pitch to them, hopefully win the work and then deliver (hopefully within budget). You then make some money. That could describe a retailer through to a property business.

It seems to me that the right person for the job is not always the most obvious person. If more businesses took a risk and broadened their search you may find a hidden gem. Go on be brave.

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend,

Lee

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Is construction pushing the economy higher

I read a statistic this week  that the construction industry is forecast to grow by as much as 23% by 2018 – a whopping £12bn contributed to the UK economy. But in stark contrast, the number of profit warnings for construction companies is on the increase – which point is right? Well I think they both are.
The Construction Products Association’s (“CPA”) autumn forecast, published in October 2014 highlights a number of areas for growth:

·         Road construction to increase due to Highways Agency’s capital funding increase;

·         Rail output growth for a couple of years before tailing off; and

·         Infrastructure spend to grow.

So here is the disconnect, we hear construction industry and assume a building yet the industry covers a wider array than just the latest office block. Take the M1, we’re all enduring 50 mph yet the people behind the ongoing work are in the construction industry.

I recently discussed the perfect storm in the property market, yet despite the scarcity of labour and materials it is now widely accepted that if you weather this storm the growth is yours to take. A bit like 2008, those businesses that survived the recession came out in a much better financial position – what’s another year or so.
The growth, as well as the points made by the CPA, comes from:

·         Garden cities: Appropriate sites are being identified and I expect post-election plans will be put in place for a significant number of developments, with the Lyons Review noting 500,000;
·         Planning permissions: Improvements to the system will allow for a quicker turnaround on future housing and development – this will bring forward a number of schemes; and
·         Affordable housing and other incentive schemes: A wider push to keep housing affordable or financing accessible will keep the market moving.

So I come back to the start. A number of profit warnings – this reflects those businesses unable to adapt quickly to changes in market conditions. This is not always their fault but a market that is new to all. To me 23% growth feels high and with so many variables it is difficult to see how it can be achieved but look at the potential for the future which clearly points towards growth in the sector.

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend,

Lee

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Moving on up….North

A lively debate last night at the local – the usual stuff, Yorkshire versus Manchester but outside the pub an alliance is being formed. With recovery under way and a number of proposals being tabled that will bolster the economic regeneration in Northern England – old rivalry is being shelved as we all simply climb into bed with each other for the benefit of the economy.

November saw the Government make a number of pledges to us Northerners; with George particularly highlighting his plans for a Northern Powerhouse (catchy!). Underpinning this will be HS3, a much improved rail network slashing journey times that not even HS2 can achieve. Oh and the best part is that HS3 arrives years (some may say light years) ahead of HS2. Sounds like a good investment to me.

Just look at the improvements in time. HS2 will knock 10 minutes off a journey to London while I’ll be in Manchester in just over 30 minutes (as opposed to the unknown at the moment).

Is all this a sympathy vote though? The North was hit hard during the recession and particularly the construction sector in the North East where the industry contracted by almost 40%, according to the Office of National Statistics.

Now it doesn’t bother me that Manchester are leading the charge, I love Manchester and think the city has such potential. A recent visit to Manchester just demonstrated how far it has come since I left University in 2005. Even my old building has been removed and replaced with a sparkly new one. Large investment and partnerships for residential, Spinningfields and the Cotton Building are all showing that construction is back on track here. But it’s not all about the mancunians.

Leeds, and to a lessor extent Sheffield, are also pushing ahead. The number of speculative buildings is increasing and as we sit in our offices we overlook the impressive Wellington Place that seems to be going up in record speed. In a recent interview Tom Riordan noted that over the coming years there will be companies that surprise us moving to Leeds. Exciting times. Just makes you want to smile.

So each city is moving in the right direction, by 2027 we should be better connected (you never know they may have finished the M1 by then!). I guess you have to request that the roads are invested in. The M62 is still a big thing in the North, and when it grinds to a halt it causes ramifications.

Having a grand vision is one thing, but delivering it is another. Osborne’s “Northern Powerhouse” has much in common with the “Northern Way” - former deputy prime minister John Prescott’s equally grand plan to, yes, improve east to west transport connections. While announced with great fanfare, this project yielded few tangible improvements. Let’s cross our fingers and hope then.

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend,

Lee

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The Perfect Storm (and no not the movie!)

I do like to be positive wherever I can so stay with me on this way as it starts pretty low.

Following a number of years of construction businesses surviving by any means the perfect storm has been created in the construction sector. During the recession a number of contracts were taken on at low margins – mainly to keep people busy and pay the bills. The problem now is costs are rising and until the better margin contracts come through the businesses are being squeezed. The evidence of this is in the market place with a number of contractors issuing profit warnings.

Another sad factor is that with a steep upturn in growth there is becoming an ever increasing shortage of resource across the board. These pressures on the supply chain are then resulting in increased prices – yet another whammy to the industry.

But why is there a shortage? Well if you take labour, this simply reflects that there was little investment during the recession in the skill. The old hands ticked over while new graduates sought employment anywhere they could. The increase in work now means that there is a lack of the skill base needed; however there is hope – people are doing the training, the degrees, the apprenticeships so be patient and look for the right people. A combination of good advertising and marketing and willing to invest in your employees will benefit you in the long run.

So where to next;

• Legacy contracts are what they are and they just need managing out. Businesses should seek variations though I completely accept this will be difficult.
• Increasing costs of a business are a short term threat until the improved margin contracts come through. The more I speak to bankers the more I realise they don’t like surprises. Be upfront with them, can’t guarantee it will count but if you don’t ask you don’t get and it may help you survive those tough months.
• Invest in people. This is a global message not just industry specific. We are a nation of dying trades yet construction is one we will always need.

The media message is of course taken to the extreme but the more businesses I chat to, the more you see the problems. Shortages and rising costs are here, we have to accept that but as the market settles and income hopefully takes a positive turn things should start to smooth out in late 2015.

Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.

Enjoy the weekend,

Lee

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