House Building Facing Fewer Risks
BMI View: We remain positive on the UK residential construction sector and highlight that there is potential for us to upgrade our forecasts following strong growth in the number of housing starts over the last year. There are concerns that the housing market is being overheated by the introduction of the second element of the government's Help To Buy Scheme, however this is not the case, and the demand picture is such that developers will look to increase their output in the coming years.
We have been increasingly positive on the UK's residential construction sector since we noted the upside potential for the market created by the government's Help To Buy scheme, which in combination with a turnaround in the UK's economic performance, boosted confidence in the UK housing market (see 'Scheme To Boost Housing Confirms View', 25 June 2013). Looking at the level of new build housing starts across the UK, it is clear that over the second half of 2013 and in particular over Q1 2014 there has been impressive growth in the number of new houses being started (see chart below).
While this is positive news for our forecasts, which see 1.6% real growth in the residential and non-residential sector over 2014, it must be noted that housing starts are still 26% below their Q1 2007 peak. Indeed, house building is lagging hugely behind the necessary levels to satisfy demand and as such house price increases - especially in London - have become a major political issue; the Office for National Statistics said UK house prices rose by 8% in the year to the end of March 2014 and Land Registry noted a 17% increase in London house prices over the same period.
|House Building Turnaround|
|Number of Housing Starts (LHS) and Year-on-year Growth (RHS)|