United Kingdom Housebuilders Face Market Implosion

Hugh Pavletich
PERFORMANCE URBAN PLANNING
Christchurch
New Zealand

November 17, 2008

The British urban planning model is dead.

The UK The Times Housebuilders face market implosion - Times Online reports that housing construction in Britain (it is assumed this includes Northern Ireland) is likely to fall to around 50 – 60,000 units over the next twelve months - compared with 209,606 units during 2007 and 404,356 units built in 1967.

The projected level of housing construction is the worst in the developed world and historically as well. In the United States during the Great Depression years of the 1030’s, residential construction fell on average to approximately 2.18 per thousand population.

California – the other “basket case” of the developed world – with a population of 37 million approximately - is projected to put in place approximately 70,000 units over the next 12 months, which represents a “build rate per 1000 population” of 1.89.

The Times article understates the gravity of the situation - as it fails to employ the “build rate per thousand population” measure. It is important this measure be employed, to reflect the underlying population bases, when comparing housing construction over time.

The United Kingdom population in 2008 is estimated to be approximately 61 million – which indicates at 50,000 units a build rate per 1000 population of 0.82 / 1000.

To illustrate the gravity of the United Kingdom residential construction sector – if other countries fall to these levels – their annual residential construction would be as follows –

(1) United States – population base 305 million approximately. Its residential construction would fall to 250,100 per year from the current privately owned low volume starts of 817,000 (US Census) which is well down on figures achieved in preceding years.

(2) Australia – population base 21 million approximately. Its residential construction sector would fall to 17,220 per year from the current low volume 140,000 approximately (Australian Bureau of Statistics).

(3) New Zealand – population base 4.3 million approximately – Its residential construction sector would fall from the current weak consent rate of approximately 16,000 per year to 3,526. It had peaked at a build volume of 33,000 per year.

In essence – this is the inevitable downside of regulatory induced housing bubbles globally – as explained within Scoop: Housing Affordability – The Shift To Reality. The days of “inflation based lending” are over – as the survivors of the global financial sector learn the hard way, that if they are interested in survival long term, “income based lending” at approximately three times annual household income or lower, is their only option.

To meet replacement – build rates per thousand population should never fall below 2 to 3 / 1000 population – depending on the overall age and construction standards of the housing stock.

An important “leading indicator” is the Baltic Dry Index of sea freight costs ( DryShips Inc. - Daily Market Report) globally. These rates have collapsed some 93% since May.

Governments at all levels –would be well advised to learn from the current “construction shambles” of the United Kingdom and California – and with the utmost urgency - take the necessary steps to allow new housing to be constructed at three times annual household incomes as soon as possible.

ENDS