UK demand for new homes outstrips supply despite economic outlook

Demand for new homes continues to outstrip supply despite mounting fears about the UK economy, raising the likelihood that the housing market will cool rather than crash.

Crest Nicholson and Bellway, two of the country’s biggest housebuilders, were upbeat on their prospects on Tuesday, with the former upgrading its revenue forecasts for the full year and the latter announcing it was selling homes at a faster pace than in the previous year.

That was despite rising interest rates, inflation and an unexpected contraction in the economy, which have stoked expectations of a slowdown in the housing market and possibly a sharp drop in sales.

“The message to date is that trading has not really abated,” said Chris Millington, an analyst at Numis. “The sales rates are really strong compared to pre-Covid; order books are where we’ve never seen them before.

“Inevitably, [the market] is going to moderate; you can’t see that not happening with rates going up and economic uncertainty. But this makes it look like a moderation not a crash,” he said.

Crest booked an adjusted pre-tax profit of £52.5mn in the six months to the end of April, up 45 per cent from the £36.1mn recorded in the same period last year.

The company incurred an exceptional charge of £105mn to cover fire safety improvements that stem from the Grenfell tower fire five years ago, causing it to swing to a loss on a non-adjusted basis.

Crest’s share price rose more than 6 per cent in early London trading, trimming its slide over the year to about 28 per cent. Bellway shares climbed 2.3 per cent. They have declined 32 per cent in 2022.

Both companies have been hit as expectations of a slowdown have increased and housing secretary Michael Gove has taken a hard line with the sector over building safety.

Crest boss Peter Truscott said the company was also having to contend with price rises of as much as 30 per cent for certain materials thanks to energy cost increases.

Overall, build costs had risen 6 to 8 per cent but continued to be offset by rising house prices, said Truscott, with a chronic undersupply of new homes in the country ensuring demand remained resilient.

The supply of new homes was being constrained by the planning system, with local authorities struggling to parcel up land because of pandemic-related delays and the government shelving wholesale planning reform, he added.

Property portal OnTheMarket, which published its full-year results on Tuesday, also predicted a moderation in the market, rather than a crash.

Jason Tebb, the company’s chief executive, said there were signs that more homes were coming to market, which was likely to put the brakes on the runaway price growth seen during the pandemic.

“I think there will be a slight rebalancing of market conditions as more properties drip feed to the market. In the next few months, I expect we’ll start to see price increases level out, but we’re a long way from seeing that demand and supply imbalance level out,” he said.