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Chart 1: Private residential planning approvals (Great Britain)

Over the last year new housing activity has suffered renewed retrenchment as the wider housing market remained moribund and the UK economy teetered on the brink of a double dip recession. Earlier hopes of a modest strengthening in demand for new housing faded as consumer confidence deteriorated and mortgage availability remained scarce. Against this tough trading environment, the value of underlying project starts fell back 8% during 2011 as housebuilders have focused on building out existing sites and looked to higher margins rather than increased volumes to rebuild profitability.

The flow of private residential approvals also remains weak. At 26,000 units, private residential approvals during the fourth quarter were 6% down on the preceding three months and 2% lower than a year ago. Overall private residential approvals totalled 109,000 units during 2011, a 7% drop on the previous year although 4% up on their 2009 low point.

However, closer analysis of Glenigan data reveals a change of emphasis as developers anticipate a tentative improvement in market conditions over the coming year. The average number of units on projects (of 10 or more units) securing planning approval has declined by 12% over the last two years. In addition traditional ‘family’ housing is accounting for a growing proportion of projects in the development pipeline; outside of London only 34% of schemes approved last year were primarily apartments compared to a pre-recessionary peak of 49% in 2006. This is expected to feed through as a marked shift in the type of homes being built over the next three years.

Demand pressures have shaped these changes, with the ‘equity gap’ remaining a major barrier for many first time buyers. However the shift away from apartments and towards smaller sites will also help house builders to maintain selling prices and margins in the current fragile market, whilst providing the flexibility to raise production rates as conditions improve.

The larger housebuilders have been leading the changes. Whilst overall permissions fell last year, the seven listed firms have strengthened their development pipeline; securing permission for over 41,000 units, an 8% rise on 2010. Recent announcements confirm the majors’ strategy. Persimmon has reported that it opened 25 new sites in the last quarter of 2011, “in anticipation of an active spring 2012 selling season”. Similarly, national housebuilder Bellway has reported visitor levels up by 20 per cent since the start of January. With the government's new mortgage indemnity guarantee scheme about to launch, it said early indications were that the housing market remains resilient. It expects to open around 60 further new developments during the first half of this year. Glenigan is forecasting a 15% rise in project starts during the current year as housebuilders increase their pool of active sites.

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