Houses Make Comeback as British Reject ‘Little Box’ Apartments – Bloomberg.com Updated:New York, Dec 10 03:53London, Dec 10 08:53Tokyo, Dec 10 17:53 SYMBOL LOOKUP FEEDBACKHOMENEWSEXCLUSIVEWORLDWIDEREGIONSMARKETSINDUSTRIESECONOMYPOLITICSLAWENVIRONMENTSCIENCEOPINIONSPENDSPORTSARTS AND CULTUREEDITORS’ VIDEO PICKSBLOOMBERG MARKETS MAGAZINESPECIAL REPORTMARKET DATASTOCKSRATES & BONDSCURRENCIESMUTUAL FUNDSETFsCOMMODITIESECONOMIC CALENDARPERSONAL FINANCEJANE BRYANT QUINNJOHN DORFMANPORTFOLIO TRACKERCALCULATORSFINANCIAL GLOSSARYTV and RADIOBLOOMBERG TELEVISIONBLOOMBERG TELEVISION SYNDICATED REPORTSBLOOMBERG RADIOBLOOMBERG PODCASTSBLOOMBERG SHOWSCEO SPOTLIGHTCFO INSIGHTPORTFOLIO MATTERSMOBILEBUSINESSWEEKBUSINESS EXCHANGEBloomberg InnovatorsTechnologyCurrenciesForex Trading VideosETFsCEOCommoditiesExclusiveWorldwideRegionsMarketsIndustriesEconomyPoliticsLawEnvironmentScienceOpinionSpendSportsArts and CultureEditors’ Video PicksBloomberg Markets MagazineSpecial ReportRESOURCES Bloomberg TV Bloomberg Radio Bloomberg PodcastsBloomberg Press More News • Gross Headed for Record Book as Manager of Biggest Mutual Fund in History • Ron Paul’s Fed-Bashing Resonates With Lawmakers Grown Wary of Bank’s Power • Hildebrand Sets Sights on `Sacred Cows’ of Swiss Banking as SNB Job Looms Houses Make Comeback as British Reject ‘Little Box’ Apartments Share Business ExchangeTwitterFacebook| Email | Print |A A A By Tim Barwell Dec. 9 (Bloomberg) — Houses are making a comeback in theU.K. as buyers reject “little box” apartments and investordemand for rentals evaporates. Single-family attached homes accounted for about 24 percentof all residences started in England in the first nine months,the highest proportion since 1992, according to the NationalHouse-Building Council. Semi-detached homes made up 17 percentof all starts, a level not seen since 1999. “Most people dream of having a front garden and a backgarden, with a little bit of security around them,” saidAlistair Leitch, finance director at Bellway Plc in Newcastle,England. “They don’t want to have to park their car 50 yardsfrom home.” U.K. homebuilders that once rushed to build flats are nowtrying to meet demand for private homes. The reversal isoccurring as banks restrict lending to buy-to-let apartmentinvestors. That helped push prices down by almost a quarter fromthe 2007 peak through March of this year, the most of any typeof British residential property, according to the NationwideBuilding Society, the country’s biggest mortgage lender. In the first nine months of this year, apartments accountedfor around 40 percent of all starts in England, the least in sixyears, according to the House-Building Council, the U.K.’sbiggest insurer for new homes. About 60 percent of theproperties Bellway plans to build next year will be houses,compared with just over 50 percent in the fiscal year throughJuly, Leitch said. The company sold 4,380 homes in the year. Revamping Urban Sites The proliferation in apartments was fueled by a governmentpolicy to emphasize high-density development on disused urbansites. The goal was to preserve the limited supply ofundeveloped land while increasing the number of dwellings inEngland. In July 2007, the government announced a target of 3million new homes by 2020. The policy worked. As apartment blocks rose, detachedhouses fell to 12 percent of the total last year from 44 percentin 1997. The proportion of apartments rose to 51 percent from 15percent in that period. “The industry gets blamed for building little boxes, butwe take our lead from the planners,” Redrow Plc founder andChairman Steve Morgan said in an interview. “The industry wasguided by the government toward a high increase in density.”The rules also created pent-up demand for family housing, hesaid. A decade of soaring home prices, coupled with TV programssuch as “Location, Location, Location” aimed at amateurproperty buyers, spurred a 19-fold increase in the buy-to-rentmarket to 190 billion pounds ($309 billion) from 1997 to 2007,said London-based property broker Savills Plc. Investor Demand Investors helped spur development of high-rise apartmentblocks in cities such as Birmingham and Leeds that outpaceddemand. Leeds City Council said in April that about 13 percentof center apartments are were empty, citing local tax returns. “With investor demand largely gone, it’s a question ofselling new flats to occupiers,” the bulk of whom will befirst-time buyers requiring larger mortgages, said RichardDonnell, director of research at London-based property researchcompany Hometrack Ltd. Apartment prices dropped 22 percent from the peak throughMarch to about 109,708 pounds, compared with a 16 percentdecline for detached houses to 211,595 pounds, according toNationwide. Apartments became “significantly harder to sell” through2008, Peter Redfern, chief executive officer of house builderTaylor Wimpey Plc, said in an interview. Prices fell about 30percent at the low point of the market earlier this year, twiceas much as houses, he said. New Policy In 2000, the price difference between a newly builtapartment and its resale value was 55 percent, accordingHometrack. That new-build premium has now vanished forapartments while it remains at about 15 percent for new houses. To reduce risk, builders are focusing on houses and smallerdevelopments that require less investment upfront. Lenders and new government policies are also helpingpromote house construction. In April 2007, the governmentcreated new zoning guidance to promote a greater mixture ofhousing types, sizes and values, easing some of the emphasison higher density. Barclays Plc, Britain’s second-largest lender, is nowoffering five-year fixed-rate mortgages at 5.49 percent with a30 percent down payment. That compares with 6.39 percent and a40 percent down payment for a buy-to-rent investor. Reformed System “We have reformed the planning system to help localauthorities deliver more and better homes,” Communities andLocal Government, the department responsible for planning, saidin an e-mail. “Changes to the planning policy in 2007 requirecouncils to do more to ensure the right mix of housing isbuilt.” Taylor Wimpey, the U.K.’s second-largest homebuilder byvolume, got around 40 percent of its sales from apartments atthe top of the market in 2007. About 23 percent of its land isnow slated for flats. The company sold 4,702 properties in theU.K. in the first half of this year. Clover Bank, a 23-house Taylor Wimpey development nearBirmingham in central England, has almost sold out since thefirst unit was purchased in February. Two properties remained asof Nov. 17, according to the company. That contrasts with its Latitude project, a 189-apartmentblock about 13 miles away. A total of 67 apartments, firstmarketed in 2006, were still for sale the development’s estateagents, Knight Frank LLP said last month. Construction wastemporarily halted after the property market stalled, before thework was completed earlier this year. Bigger Spaces A 1,289 square-foot free-standing house at Clover Bankcosts 259,995 pounds and includes a garden of a similar size, agarage and a driveway. By contrast, a two-bedroom flat inLatitude costs 195,000 pounds for 677 square feet, a communalgarden area, and storage area, an open-plan living room andkitchen and a concierge at the entrance to the block. Barratt Developments Plc, Britain’s biggest homebuilder,sold the largest proportion of flats among the national buildersin its last fiscal year through June, at 54 percent, slightlymore than competitors Bellway and Redrow. Persimmon Plc has thelowest share of apartments among the U.K.’s seven biggesthomebuilders at about 20 percent, according to the company. Barratt expects to sell around 12,000 homes in its currentfinancial year, with 40 percent to 45 percent being apartments,the company said on Nov. 17. Persimmon expects about 9,000completions in the year through December. Apartment Demand Bellway’s Leitch said flats will remain a substantial partof the London market, where space is limited, but doesn’t expectsuch a boom in apartments in other town centers and rural areasto return. “We had a government that wanted more apartments on apiazza, with everyone pouring out in the evenings to have adrink,” Leitch said. “It didn’t happen, did it?” Builders are too quick to blame the government, and theopportunity to profit was equally responsible for the market’ssurge, said Hometrack’s Donnell and Alastair Stewart, an analystat Investec Securities. “Housebuilders have been merrily building bad propertiesfor the last five years, and they try to put it at thegovernment’s feet,” Stewart said in an interview. “There was abit of planning involved, but they thought they could floghouses more profitably by stacking small rooms on top of eachother.” Saving Space Taylor Wimpey is designing a new range of houses, withmodels that save space and minimize the amount of land needed.They will feature fewer hallways and more open-plan kitchens,Redfern said on Nov. 4. They will be ready next year. Redrow plans to introduce its own collection of traditionalfamily housing starting in January, having reduced the number ofmodels it sells to 32 from 80. The return to houses is “a good move” said ChrisMillington, an analyst at Numis Securities in London. “There isa shortage of land in the U.K. so we can’t concrete over it, butthe consumer wants a driveway and a garden, and clearly when themarket got weaker the flats were the ones hit hardest.” To contact the reporter on this story:Tim Barwell in London at tbarwell@bloomberg.net Last Updated: December 8, 2009 19:00 EST
