Houses Make Comeback as British Reject ‘Little Box’ Apartments
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By Tim Barwell
Dec. 9 (Bloomberg) -- Houses are making a comeback in the U.K. as buyers reject “little box” apartments and investor demand for rentals evaporates.
Single-family attached homes accounted for about 24 percent of all residences started in England in the first nine months, the highest proportion since 1992, according to the National House-Building Council. Semi-detached homes made up 17 percent of all starts, a level not seen since 1999.
“Most people dream of having a front garden and a back garden, with a little bit of security around them,” said Alistair Leitch, finance director at Bellway Plc in Newcastle, England. “They don’t want to have to park their car 50 yards from home.”
U.K. homebuilders that once rushed to build flats are now trying to meet demand for private homes. The reversal is occurring as banks restrict lending to buy-to-let apartment investors. That helped push prices down by almost a quarter from the 2007 peak through March of this year, the most of any type of British residential property, according to the Nationwide Building Society, the country’s biggest mortgage lender.
In the first nine months of this year, apartments accounted for around 40 percent of all starts in England, the least in six years, according to the House-Building Council, the U.K.’s biggest insurer for new homes. About 60 percent of the properties Bellway plans to build next year will be houses, compared with just over 50 percent in the fiscal year through July, Leitch said. The company sold 4,380 homes in the year.
Revamping Urban Sites
The proliferation in apartments was fueled by a government policy to emphasize high-density development on disused urban sites. The goal was to preserve the limited supply of undeveloped land while increasing the number of dwellings in England. In July 2007, the government announced a target of 3 million new homes by 2020.
The policy worked. As apartment blocks rose, detached houses fell to 12 percent of the total last year from 44 percent in 1997. The proportion of apartments rose to 51 percent from 15 percent in that period.
“The industry gets blamed for building little boxes, but we take our lead from the planners,” Redrow Plc founder and Chairman Steve Morgan said in an interview. “The industry was guided by the government toward a high increase in density.” The rules also created pent-up demand for family housing, he said.
A decade of soaring home prices, coupled with TV programs such as “Location, Location, Location” aimed at amateur property buyers, spurred a 19-fold increase in the buy-to-rent market to 190 billion pounds ($309 billion) from 1997 to 2007, said London-based property broker Savills Plc.
Investor Demand
Investors helped spur development of high-rise apartment blocks in cities such as Birmingham and Leeds that outpaced demand. Leeds City Council said in April that about 13 percent of center apartments are were empty, citing local tax returns.
“With investor demand largely gone, it’s a question of selling new flats to occupiers,” the bulk of whom will be first-time buyers requiring larger mortgages, said Richard Donnell, director of research at London-based property research company Hometrack Ltd.
Apartment prices dropped 22 percent from the peak through March to about 109,708 pounds, compared with a 16 percent decline for detached houses to 211,595 pounds, according to Nationwide.
Apartments became “significantly harder to sell” through 2008, Peter Redfern, chief executive officer of house builder Taylor Wimpey Plc, said in an interview. Prices fell about 30 percent at the low point of the market earlier this year, twice as much as houses, he said.
New Policy
In 2000, the price difference between a newly built apartment and its resale value was 55 percent, according Hometrack. That new-build premium has now vanished for apartments while it remains at about 15 percent for new houses.
To reduce risk, builders are focusing on houses and smaller developments that require less investment upfront.
Lenders and new government policies are also helping promote house construction. In April 2007, the government created new zoning guidance to promote a greater mixture of housing types, sizes and values, easing some of the emphasis on higher density.
Barclays Plc, Britain’s second-largest lender, is now offering five-year fixed-rate mortgages at 5.49 percent with a 30 percent down payment. That compares with 6.39 percent and a 40 percent down payment for a buy-to-rent investor.
Reformed System
“We have reformed the planning system to help local authorities deliver more and better homes,” Communities and Local Government, the department responsible for planning, said in an e-mail. “Changes to the planning policy in 2007 require councils to do more to ensure the right mix of housing is built.”
Taylor Wimpey, the U.K.’s second-largest homebuilder by volume, got around 40 percent of its sales from apartments at the top of the market in 2007. About 23 percent of its land is now slated for flats. The company sold 4,702 properties in the U.K. in the first half of this year.
Clover Bank, a 23-house Taylor Wimpey development near Birmingham in central England, has almost sold out since the first unit was purchased in February. Two properties remained as of Nov. 17, according to the company.
That contrasts with its Latitude project, a 189-apartment block about 13 miles away. A total of 67 apartments, first marketed in 2006, were still for sale the development’s estate agents, Knight Frank LLP said last month. Construction was temporarily halted after the property market stalled, before the work was completed earlier this year.
Bigger Spaces
A 1,289 square-foot free-standing house at Clover Bank costs 259,995 pounds and includes a garden of a similar size, a garage and a driveway. By contrast, a two-bedroom flat in Latitude costs 195,000 pounds for 677 square feet, a communal garden area, and storage area, an open-plan living room and kitchen and a concierge at the entrance to the block.
Barratt Developments Plc, Britain’s biggest homebuilder, sold the largest proportion of flats among the national builders in its last fiscal year through June, at 54 percent, slightly more than competitors Bellway and Redrow. Persimmon Plc has the lowest share of apartments among the U.K.’s seven biggest homebuilders at about 20 percent, according to the company.
Barratt expects to sell around 12,000 homes in its current financial year, with 40 percent to 45 percent being apartments, the company said on Nov. 17. Persimmon expects about 9,000 completions in the year through December.
Apartment Demand
Bellway’s Leitch said flats will remain a substantial part of the London market, where space is limited, but doesn’t expect such a boom in apartments in other town centers and rural areas to return.
“We had a government that wanted more apartments on a piazza, with everyone pouring out in the evenings to have a drink,” Leitch said. “It didn’t happen, did it?”
Builders are too quick to blame the government, and the opportunity to profit was equally responsible for the market’s surge, said Hometrack’s Donnell and Alastair Stewart, an analyst at Investec Securities.
“Housebuilders have been merrily building bad properties for the last five years, and they try to put it at the government’s feet,” Stewart said in an interview. “There was a bit of planning involved, but they thought they could flog houses more profitably by stacking small rooms on top of each other.”
Saving Space
Taylor Wimpey is designing a new range of houses, with models that save space and minimize the amount of land needed. They will feature fewer hallways and more open-plan kitchens, Redfern said on Nov. 4. They will be ready next year.
Redrow plans to introduce its own collection of traditional family housing starting in January, having reduced the number of models it sells to 32 from 80.
The return to houses is “a good move” said Chris Millington, an analyst at Numis Securities in London. “There is a shortage of land in the U.K. so we can’t concrete over it, but the consumer wants a driveway and a garden, and clearly when the market got weaker the flats were the ones hit hardest.”
To contact the reporter on this story: Tim Barwell in London at tbarwell@bloomberg.net
Last Updated: December 8, 2009 19:00 EST
