The Road to Recovery:

The Housing Market in 2014 and Beyond

Richard Laming

Director of Economic Planning

Advanced Manufacturing?

Financial Services?

Professional Services?

Science?

Housing?

The importance of housing to the economy

0

1

2

3

4

5

6

7

8

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Per c

ent

New buildings Improvements to dwellings Transfer costs1 Private sector, including transfer costs.Source: ONS

Source: OBR

Low: 3.3% GDP

Structure

• Macro Economic Signals

• Demand Signals

• Supply Signals

• Conclusions

Macro Economic Signals

Planning in a recovering market

Governor of the Bank of England, Mark Carney, has said that housing market recovery will help spur economic growth in the coming months because rising house prices tend to go with an increase in consumer spending.

He explained that a stronger mortgage market was usually linked with easier credit conditions and higher income expectations.

Mr Carney also downplayed fears of a housing bubble commenting that a pick-up in housing was "initially an important part of the recovery". However, he added that the Bank was "vigilant" to the threat of a house price bubble and that there was a "broad range of tools" to deal with surging prices.

Financial Times 14/11/13

A strong performance in 2013…

• 2013: GDP growth four times OBR forecast

• Private consumption and housing investment made an important contribution to economic growth

• Business investment and net trade remained subdued during 2013

Household consumption

• Increased spending due to lower savings levels rather than increases in real incomes

• Potential to level off in 2014/15 before growing again

Source: ONS/ Analysis Turley Associates

9.23.5

5.8

26.4

4.81.514.4

2.1

10.3

1.6

9.7

10.7

% Share Spending Per Head (Q3, 2013)

Food and Non Alcoholic DrinkAlcohol and TobaccoClothing and FootwearHousingHousehold Goods and ServicesHealthTransportCommunicationsRecreation and CultureEducationRestaurants and HotelsMiscellaneous

Earnings growth critical to long term recovery

• Growth in earnings dependent on productivity growth

• Higher levels of business investment forecast 2015

2012 2013 2014 2015 2016 2017 2018

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

GDP Forecast

Private consumption Business investment Dwelling InvestmentGovernment Change in inventories Net trade

% C

ontr

ibuti

on

Source: CML/ Analysis Turley Associates

Employment (change Sept-Nov 2013)

• Unemployment = 7.1 %

• Employment = 30.1 m

-3%

+280,000

The largest quarterly rise in

employment since 1971

“…no immediate need to raise interest rates”

“Well being” matters

April 2011 to March 2012 April 2012 to March 201375.2

75.4

75.6

75.8

76.0

76.2

76.4

76.6

76.8

77.0

77.2

“Medium – High” Satisfaction Rating with Life

%

Source: ONS/ Analysis Turley Associates

Consumer confidence

• GFK’s Consumer Confidence Index (running since 1974)

• The scale of improvement in the last 9 months greater than at any time in the last 40 years

• Latest index (Jan 2014) shows:

• Improvement in personal finances

• Expectations improving with regard to the health of the economy

• Confidence improving in relation to making “major purchases”

Source: Research carried out by GfK on behalf of the European Commission

Demand

Signals

Long Term Population Growth

• +9.6 million people in next 25 years

• Natural change = 57% of projected increase

• this is not just an immigration debate

• Widely acknowledged that England needs to plan for 250,000 to 300,000 homes p.a.

Mortgage Lending- a long term view

Source: CML/ Analysis Turley Associates

19881990

19921994

19961998

20002002

20042006

20082010

20120

50

100

150

200

250

300

350

400

Total Gross Secured Lending£b

n

High LTV Mortgage Availability (fixed rate, Dec 2013)

Jun-12

Aug-12

Oct-12

Dec-12

Feb-13

Apr-13

Jun-13

Aug-13

Oct-13

Dec-13

0

0.5

1

1.5

2

2.5

3

Products AvailableInterest Rates (av-erage)In

dex

Source: CML/ Analysis by Turley Associates

Mortgage Approvals

Nov 2012

Dec 2012

Jan 2013

Feb 2013

Mar

2013

Apr 2013

May

2013

Jun 2013

Jul 2

013

Aug 2013

Sep 2013

Oct 2013

Nov 2013

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

PurchaseRemortgageOther

App

rova

ls (t

hous

ands

)

Source: CML/ Analysis Turley Associates

Change in Average House Prices

Prices increasing across all regions as demand rises

Source: Nationwide

North West – Average House Price

Source: Nationwide

A long range view on house prices

• OBR forceast:

• 5% price growth in 2014

• 7% price growth in 2015

• Growing consumer confidence

Supply Signals

House Completions - England

• 107,820 homes delivered in 2012/13

• Q1 – Q3 2013 = 78,830 homes

• Significant shortfall

• No account for backlog

Planning Approvals: The North West

• c. 17,000 units have been granted detailed planning permission (Q3 2012 to Q3 2013)

• Quarterly approvals show upward trend, but

• 17,000 units = Less than 1 year required supply

• RSS = c. 23,000 p.a

Supply Implications

• Housing supply is “inelastic” due to :

• Supply of land in the right places at the right time

• Timescales involved in the planning process

• Mortgage availability

The Government’s Response to date

1. Reform of planning

2. Help to Buy

3. Public sector land supply

Sufficient boost to supply?

What more can be done?

The Road to Recovery - Conclusions

1. Improving confidence.

2. Improving credit supply.

3. Increasing house prices.

4. Positive outlook for 2014 and beyond, but

5. Housing supply continues to lag behind.

Time for creative solutions and innovation…