Britain’s house prices are going to soar because there’s too little housing and too much demand.
While building more affordable houses is the most fundamental way to tackle the imbalance between supply and demand, Daniel Porter and his team at UBS highlighted an important factor that directly prevents more properties being created — housebuilders are running out of land to build on.
The note titled “Persimmon: No signs of slowdown in mainstream UK housing,” is a good indicator of the challenges housebuilders face when bringing new homes to the market.
Persimmon is a good case study as it is one of the largest homebuilders in Britain with a market capitalisation of £5.7 billion.
Although UBS points out that its orderbook for properties is healthy, there is one key concern — “site count remains under pressure on the back of strong sales rates.”
Here is the section (emphasis ours):
Site count remains under pressure with active site count of 370 (down around 4% y/y) with Persimmon continuing to work towards increasing site count towards 400.
This is evidently more challenging given strong sales rates which imply a quicker churn.
Persimmon continues to invest into land although has not quantified this.
Britain needs more properties on the market to sate demand and therefore stabilise house prices. Housebuilders are indeed building, and quickly, but it also means they’re running out of land to build on.
And if companies like Persimmon don’t continually increase their investments in land, then there is no where to build new homes.
Research from the Royal Institution of Chartered Surveyors, estate agent Savills, the Council of Mortgage Lenders, and bank analysts has said prices will continue to rise over the next five years. Even a study published by Santander showed average house prices across the country will more than double
to around £500,000 over the next 15 years.
So if a lack of places to build new properties becomes a serious issue, it will only exacerbate the terrible supply and demand balance further.
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