News Business New House Prices Surge Despite Flat Market: A Call for Diversification
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New House Prices Are Rising Rapidly Despite a Flat Market

Published: March 25, 2024 2:23pm EDT

The real estate landscape is undergoing a fascinating transformation, with new house prices defying market expectations. While existing home prices remain subdued, new builds have surged by an impressive 17% over the past year. But this isn't just a short-term blip; it's part of a larger trend that warrants closer examination.

The Eye-Catching Surge in New Build Prices

Amidst the humdrum of a seemingly flat market, new houses are commanding attention. Their prices have soared, outpacing the average price for existing homes, which has cooled by 2.4%. But let's delve beyond the headlines and explore the long-term trajectory.

Decade-Long Trends: A Shift in Housebuilder Strategies

Over the past decade, we've closely monitored the performance and financial strategies of the UK's largest housebuilders. Back in 2008, during the global financial crisis, new build prices from major firms closely mirrored the overall UK house price average. However, since then, these builders have consistently priced their homes above the broader market. On average, new builds now sell for approximately 8% more than the typical house.

What's driving this divergence? A significant shift in how housebuilders operate. Our recent report, "The Invisible Hand That Keeps On Taking," reveals that these firms have significantly increased dividends to shareholders. In 2005, they paid out 16% of pre-tax profits as dividends (around £5,000 per home built). Fast forward to 2022, and dividends have ballooned to 47% of profits (£22,000 per home). Ownership structures have evolved, with global asset managers becoming major shareholders.

The CMA's Insights and the Path Forward

The UK government's Competition and Markets Authority (CMA) recently conducted an in-depth study of the housebuilding industry. Their findings highlight two critical factors: planning system uncertainties and the speculative housebuilding model. The latter, in particular, deserves attention. Private developers tend to produce houses at a rate that aligns with sales demand, rather than diversifying the types and numbers of homes to meet community needs (including affordable housing).

So, what's the solution? Diversification. We must broaden the housing types we build and rethink who constructs them. Housing associations, self-builders, and community-led housing groups can play a pivotal role. For instance, custom and self-build housing currently account for only 7% of new builds in the UK, compared to over 50% in Germany. By embracing diversity, we can address the housing shortage and create homes that truly meet our communities' needs.

Let's seize this opportunity to reshape the housing landscape, ensuring affordability, sustainability, and inclusivity.

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