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Homebuilding & Renovating Market Research

Quarter 2 2011

UK Self-build Market Report Self-build completions fall by 13.5%

The latest figures released from HM Revenue & Customs for ‘VAT refunds for DIY housebuilders’ indicate that the number of self-build 1 completions fell by 13.5% in the 12 months to June 30th 2011.

ANALYSIS The number of self-build completions has fallen quite sharply in the past 12 months, and has yet to mirror the modest recovery in the rest of the new home construction sector.

The total number of refunds of VAT reported by HMRC under notice ‘VAT431NB – VAT refunds for DIY housebuilders’ for the quarter was 1,788. Adjust ed for the number of self-build projects where VAT is recovered by other means 2 , the total number of self-build completions for the quarter was 2,765.

This could reflect the fact that selfbuilds take longer on average to complete than private sector developments, and so any recovery from the wider market trough of 2008-09 will not show in the completion figures until next year. This lag was demonstrated in 2008-09 when selfbuild completions continued to increase marginally whilst overall housing completions fell by 20%.

Total new home completions in the UK fell by 1.4% for the same period, according to figures produced by the National House Building Council (NHBC), which recorded 30,900 completions in the second quarter.

“The lack of self-build mortgage funding is likely to be a major factor in the reduced number of self-build completions,” commented Michael

18,500 18,000 17,500 17,000 16,500 16,000 15,500 15,000 14,500 14,000 13,500 13,000 12,500 12,000 11,500 11,000 10,500 10,000 9,500 9,000

40 38 36 34 32 30 28 26 24 22 20 18 16

UK self-build housing completions

2011-12

2010-11

2009-10

2008-09

2007-08

2006-07

14

% Share of all new detached housing in the UK

42

2005-06

UK self-build housing completions (units)

Self-build market share of all new detached housing

Projected 2011-12

% Self-build share of all detached housing in the UK

Projected 2011-12

Homebuilding & Renovating Market Research www.homebuilding.co.uk

SUMMARY The market in minutes I The total number of self-build homes completed in the UK for the year to June 30th 2011 was 12,970, a year-on-year decline of 13.5% (calculated using figures from HMRC 2 ). I The total number of self-build completions for the three months ending June 30th 2011 was 2,765 (Q1 of the 2011-12 financial year). I The self-build sector contributed 30% of all new detached units in the UK for Fin an cial Q1 2011-12 based on figures from HMRC and the NHBC, which recorded 6,180 detached units (excludes self-build). I VAT refunds from HMRC to selfbuilders for FQ1 2011-12 totalled £19.8m representing materials spend of £238m. I Spend on construction materials by self-builders for the year to June 30th 2011 was approximately £1.48b. Holmes, Editor-in-Chief of Homebuilding & Renovating magazine. “Since the ‘credit crunch’ there has been very limited availability of funds for self-builders, with only a few schemes operating, mostly from regional building societies with limited tranches of funds. “Lending criteria have also been tightened considerably, so selfbuild ers have needed a far larger deposit to purchase a site. Meanwhile those with part or limited proof of income, such as the selfemployed, have found it harder to access funds. This has meant that only cash rich self-builders have been able to build during this period.

M

Self-build completions fall but market still constitutes 30% of all new UK detached homes


“The good news is that the mortgage market is improving, with 26 lenders now in the market, which is lead by BuildStore, the specialist self-build mortgage provider.” These improving conditions were reflected in a recent survey of 500 self-builders conducted by Homebuilding & Renovating magazine, which found that only 3.5% of respondents were having to delay

Planning reform could boost self-build market The new National Planning Policy Framework (NPPF), which looks set to become law in the coming weeks, may create a window of opportunity for self-build projects unprecedented since 1948, when national development control was first introduced. The NPPF is intended to change the negative culture towards planning within local government, so there will be a presumption in favour rather than against, providing the proposal can be shown to be ‘sustainable’. Housing schemes in the open countryside and outside existing settlements are currently only allowed as exceptions to policy, such as agricultural need, replacement dwellings, and conversions of

their project due to difficulty obtaining funding. The survey also found that 53% of respondents did not require mortgage funding. Self-builders completed around 17,000 homes a year from 2004-09. Despite falling numbers they are still responsible for approximately 30% of all new detached homes completed in the UK and over 9% of all new housing. I

redundant agricultural buildings. This will remain but where land is on the edge of a village, landowners could suddenly find that their land has development potential for highquality, low-density ‘sustainable development’ – a term yet to be fully defined in planning law. Designated areas such as Green Belt, Areas of Outstanding Natural Beauty, and National Parks would still enjoy the same level of protection as today. “This could prove a significant boost for the self-build market,” says planning expert Ken Dijksman RTPI. “Well-designed, very low-density housing should not have an adverse impact on the environment and could help solve the rural housing shortage, breathing new life into small communities across the country, making them more viable, and supporting valuable local facilities such as village shops, post offices and schools.” I

Market decline a setback for Housing Minister’s ambitious target to double UK self-builds The latest figures from HMRC showing that self-build completions have fallen over the past 12 months will be a disappointing start to the campaign to double the size of the selfbuild market in the UK, backed by Housing Minister Grant Shapps. The recently published report ‘An Action Plan to Promote the Growth of Self-build Housing’ (download from www.nasba.org.uk), produced by The National Self Build Association (NaSBA), calls for improvements in the supply of individual building plots, greater access to self-build

finance and reform of bureaucracy, especially the planning system, to make self-build easier and more widely available. The report calls on the Government to ensure that the new National Planning Policy Framework (NPPF) recognises self-build as a mainstream element of housebuilding in the UK and that local planning authorities be required to make provision for self-build within their Local Plans to improve the availability of individual building plots. The report also calls for planning policy reform

NOTE 1 – MARKET DEFINITION The self-build market is defined as all new housing commissioned by its owner for their own occupation. It includes new homes where an architect or design and build contractor has been commissioned, those built by a main contractor directly for a private client, and owner-managed projects built using subcontractors and/or DIY labour, plus a small number of group self-builds. NOTE 2 – METHODOLOGY USED TO CALCULATE SELF-BUILD MARKET STATISTICS The only official statistic available on the size of the UK self-build market is the number of VAT refunds made each month by HMRC for completed projects under ‘VAT431NB – VAT refunds for DIY housebuilders’. This is a scheme which allows private individuals to recover the input tax paid on eligible building materials to ensure they benefit equally

Homebuilding & Renovating Market Research www.homebuilding.co.uk

PLOTFINDER INDEX Q2 2011 Analysis of the market for small development sites The number of small development sites available for sale on the open market in the UK has fallen further, as has the average asking price. Plots are taking longer to sell, but there are also fewer properties on the market.

I The Plotfinder Index recorded a fall in the average UK building plot price of 2.3% compared to the previous quarter, from £192,577 to £183,685. The average asking price for a plot has fallen 9.7% since January 2011. I The number of building plots listed for sale on the plotfinder.net database has fallen from 3,070 in May to 2,691. I The average number of days a plot remains listed for sale on the plotfinder.net database has increased from 268 days in April, to 343 in August. Plotfinder.net Plotfinder.net is the UK’s leading online database of small development sites. A paid-for subscription service, plotfinder.net lists building plots and renovation opportunities for sale across the UK through agents and private vendors.

to make the process simpler for selfbuilders, with clearer guidelines, a reduction in the number of expensive professional reports required with each application, and exclusion from planning obligations (Section 106 Agreements) and other levies towards local affordable housing or infrastructure, where it would be disproportionate or inappropriate, and likely to affect the viability of the project. The report also calls for disposals of land by the public sector to be targeted for self-build where appropriate, and for developers and private land owners to be encouraged to make individual serviced plots available to self-builders. I

from the zero rate of VAT applied to new dwellings. It is widely accepted that a significant proportion of self-builders recover input VAT by other means, such as via a VAT registered building contractor, or their own VAT registered business. A survey conducted by Homebuilding & Renovating magazine found that of 336 selfbuilders who had recently completed a project, 64.3% had recovered VAT using ‘VAT431NB’ with the balance recovering VAT by other means. To get a more accurate indication of the true size of the UK self-build market, therefore, the HMRC completion figures are adjusted by a factor of 1.5554.


UK Self-Build Market Reprt