Monday property news update - 9 August
The construction supercycle, net zero and a new era of strength for the pound
5 minutes to read
The supercycle
Each quarter we speak to 40 of England's leading volume and SME housebuilders to get a better understanding of where the new homes market is heading next. Last month's results revealed a spike in respondents voicing concerns over shortages of key building materials, a theme that has been simmering as the coordinated reopening of major economies has placed unprecedented strain on supply chains globally.
The latest purchasing managers index from IHS Markit, published last week, signalled another steep increase in the price of construction materials, with 81% of the survey panel reporting a rise in cost burdens. Responses from the Eurozone tell a similar story.
Many in the industry will be hoping cost pressures ease as normality returns in the wake of the pandemic and for those people this morning's FT will make for worrying reading. Leaders of some of the world's largest materials firms, including cement producer Holcim and Mexico’s Cemex, see the beginnings of a global "construction supercycle" as governments embark on a wave of infrastructure spending spanning the next four or five years.
Supply
The housing market's other big imbalance of supply relative to demand remains stubbornly high: there were almost 13 new buyers for every new property listed last month. That's the second highest reading in seven years - the highest being in January 2020, the first full month of the short-lived ‘Boris bounce’.
This imbalance should ease notably from the autumn, relieving some upwards pressure on house prices, according to a new Property Market Outlook from Tom Bill. Indeed, there are signs this is already happening - the Nationwide index fell back to annual growth of 10.5% from 13.4% in June. The Halifax house price index did the same thing last Friday.
The creeping return of normality and gravitational pull of demand, which has been undented by the end of the stamp duty holiday, will draw more sellers out at the end of the summer holidays - see the full piece from Tom for more.
Monetary policy
Inflation continues to gather pace in China despite signs economic growth is set to slow in the second half of the year. Data released this morning reveals prices at the factory gate rose 9% in July, exceeding both the previous month and economists' expectations of an 8.8% gain.
The numbers tee up a head scratcher for China's policymakers: should they tighten policy to ease inflationary pressures or keep the purse strings loose in order to maintain growth? How China manages the problem could provide a model for other economies over the coming months, many of whom are experiencing similar inflationary pressures.
The picture appears clearer in the UK, for now. According to Bloomberg, traders are putting the odds of a rate hike in February at 60% after the Bank of England signalled last week it would begin easing the economy off the huge support provided during the pandemic.
A rate hike in the first half of 2022 would put the BOE ahead of other central banks in exiting an era of huge pandemic induced stimulus, including both the Federal Reserve and the European Central Bank. That, plus the UK's steady recovery, could herald a period of strength for the pound - particularly against the euro - that could have big implications for prime property markets, as we'll explore over the coming months.
Net zero, continued...
In recent notes we've been tracking the government's rather fluid plan to address the built environment's substantial contribution to emissions in its bid to hit net zero. Between 2020 and 2050, buildings are likely to make up 14% of emissions reductions, according to the government's own climate advisor.
Progress in the housing market will rely on an interlocking web of regulatory progress, developments in technology and the evolving demands of homeseekers. On that final point, the pandemic appears to have moved the needle, according to Anna Ward.
Over half of respondents to Knight Frank’s latest sentiment survey said the energy efficiency of their next home is more important now compared to before the start of the pandemic, with only 1% saying it was less important and 46% selecting 'no change'.
As Anna notes, this could be a boon for the new homes market, though it may take time for buyers to shift focus. According to our survey, the majority of homeowners are seeking older homes, with 17% looking for new build property.
Student digs
Despite the pandemic having restricted international travel and disrupted study for a large proportion of students, investor appetite for purpose-built student accommodation remains undimmed.
Investors spent £656 million in the sector in the second quarter of this year, taking total spend for 2021 to nearly £2 billion. Investment for the comparable period of 2020 was £5 billion, though £4.66 billion of that was for a single deal - Blackstone’s acquisition of the IQ portfolio.
Deal volumes are up 47% on the previous year and are up 4% than the same period in 2019. The numbers suggest investors are happy to look beyond the short-term disruption and remain confident in the longer term trends - particularly demand from institutional investors for residential assets catering to a wide variety of age groups. See the full piece from Matt Bowen for more.
In other news...
Wages rise at fastest pace in 24 years as 'desperate' employers seek staff, employment levels leap after lockdown lifted, freight at the centre of a storm that threatens the global economy, Crispin Odey says Bank of England will 'never' raise rates, workers ignore Sunak's 'back to the office' call, government ministers order Whitehall to get back to the office, Netherlands grapples with social consequences of soaring house prices, the dollar hits a four-month high against the euro as the market bets on earlier Fed taper, the EU might reimpose travel restrictions on the US, and finally, can the UK make its heritage housing greener?