Construction slowdown to aid recovery

The present slowdown in the construction of new-build properties will inadvertently assist the recovery of the housing market from 2010.

That is the conclusion of analysis from Centre for Economics and Business Research (CEBR), which argues the present short-term dip will assist a long-term recovery.

The CEBR predicts new-build completions will fall by 20 per cent this year, severely jeopardising government housing targets.

Shortly after coming to power in 2007 Gordon Brown announced the government would seek the construction of two million new homes by 2016, with a further one million, carbon neutral, properties added by 2020.

This equates to around 185,000 new properties per annum. However, the present level is closer to 100,000 new-build homes a year.

With prices falling – Nationwide is now reporting prices are falling at the fastest level recorded since 1991 – developers have cut back new-build properties, and are presently waiting for prices to recover.

However, this could take some time, argues the CEBR, which predicts prices will fall by fourteen per cent peak-to-trough from the end of 2007 to mid-2009.

Yet, the resultant slowdown in construction could eventually prove to be the stimulus for a new boom – with a shortfall in supply placing additional pressure on already depleted stocks of property.

"The credit crunch has caused a shock in the housing market much bigger than most people expected, and we are now seeing the second round effects of falling confidence and a slowing economy," explained CEBR economist, Richard Snook.

"When prices have fallen in the past we have seen house building slow quite rapidly but take a lot longer to come back, which leads to demand outstripping supply.

"With the fundamentals of the housing market still relatively tight, the credit crunch might already have sown the seeds of the next house price boom."

The prospect of several interest rate cuts through 2009, combined with some easing of mortgage rationing could also expand property demand – pushing prices upward once gain, argues the CEBR.

Chris O'Toole