MARKET COMMENTARY DOCUMENT
EMPIRE PROPERTY HOLDINGS LOAN NOTE INVESTMENT OFFER
MARKET COMMENTARY
MARKET COMMENTARY THE SEEDS OF THAT CHANGE WERE PLANTED TEN YEARS AGO AT THE END OF 2004,THE AVERAGE UK HOUSE PRICE HAD RISEN BY 63% IN JUST THREE YEARS, RESULTING IN A SIGNIFICANT SHIFT IN HOUSE PRICE TO HOUSEHOLD INCOME RATIOS. Together these two factors mean that the housing market has been, and will continue to be shaped as much by the affordability of a mortgage deposit as by servicing that mortgage on a monthly basis. Transactions remain 28% below the average for the 25 years prior to the credit crunch, and the implementation of the Mortgage Market Review has limited both the number of people who can access mortgage debt and the amount they can borrow. Furthermore, there is little sign that the issue of deposit affordability will be anything but permanent unless there is a major housing correction, something we do not anticipate.
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MARKET COMMENTARY IMPACTS ON OWNERSHIP This will have several impacts. It will suppress the recovery in transaction levels and continue to put downward pressure on levels of mortgaged homeownership. Combined with limited prospects for a significant expansion of social housing provision, this means continued growth in the number of households in the private rented sector and a widening of the generational divide in the UK housing market.
As a result, Savills forecast the number of private rented households in England and Wales will increase by 1.2m over the next five years and levels of owner occupation will fall by 202,000 households. This would mean that by the end of 2019, over 24% of all households across the UK would be in the private rented sector. Among the under 35s, the proportion of households in the private rented sector would increase to 66%, with homeownership falling to just 16% of the total. Even in the next age band (35-49), homeownership would fall to just 55% of all households, with private renting accounting for 28% of households – rising to 38% in London. This trend will present opportunities for investors and major challenges for government. More fundamentally, it has the potential to change the way we look at housing in the UK and the role of homeownership in particular.
SOURCE: SAVILLS RESEARCH
The recent analysis of the annual cost of housing by Savills found that the under 35s have the highest outgoing on housing, equivalent to an average of £8,571 per household across England and Wales. Some 56% of the £37bn paid by these households was to a private landlord. By contrast, the annual housing costs of the 50-64 age group fell to an average of £4,182 per household, reflecting the extent to which they have been able to access homeownership historically, pay down their mortgage and enjoy the benefits of low interest rates on their remaining debt.
HOUSEBUILDING FORECASTS Current projections for household growth suggests that we should be building 240,000 to 245,000 new homes in England a year. Just over 112,000 new homes were completed in the 12 months to March 2014 in England. This represents an increase of 4.5% on the previous year but remains well below the 170,000 achieved in 2008. However, despite the political will to support housebuilding, the strengthening economy and growing consumer demand, Savills expect the number of housing completions to increase to 152,000 in 2019, as current conditions stand. This falls well short of Labour’s and Liberal Democrat’s targets and assumes that private housebuilders will continue to deliver the bulk of new homes. Private housebuilders have responded to strong demand for homes by increasing production.
OVER 111,000 NEW HOMES WERE STARTED BY PRIVATE BUILDERS IN THE YEAR TO MARCH 2014 Initiatives such as Help to Buy can only limit the flow of households into the private rented sector to a degree. When the cost of servicing a mortgage rises as interest rates eventually climb, mortgaged owner occupation will continue to fall, while limited accessibility to mortgages means that the bulk of new households will be private renters.
an increase of 28% on the previous year. We expect the momentum to feed into the completions data next year but constraints such as a shortage of labour and materials will prevent continued growth at this level.
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MARKET COMMENTARY
PUBLIC SECTOR AND AFFORDABLE HOUSING While housing associations and local authorities have the potential to play a significant part in boosting housing numbers, we do not expect the public sector to fill the gap between private developers’ output and housing need in the short-term. Housing associations have not delivered more than 27,000 new homes a year at any time in the last 15 years and there is little sign of this changing soon, particularly as there seems to be limited appetite for the Government’s 2015-18 Affordable Homes Programme, which was 48% ‘underbid’ in the most recent round. Local authorities are developing a lot more, but much of this is via joint ventures, so it is likely to be recorded in the house building statistics as activity by either the private sector or housing associations.
With the weight of money looking to invest in large scale rented housing and a shortfall in private rented supply, there must be a policy priority to bring forward large sites with substantial elements of build to rent, in addition to established forms of development. EMPLOYMENT Yorkshire and The Humber has the lowest labour productivity of all the English regions. Between 2006 and 2011 it was also the region with the lowest growth in gross disposable household income (GDHI) per head. In 2011 productivity, as measured by gross value added (GVA) per hour worked, was 12% below the UK average. Relative productivity had declined the most of all English regions since 2001, when it was 6% below the UK average. The gross disposable household income (GDHI) of Yorkshire and The Humber residents at £13,800 per head in 2011 was second lowest of the English regions, after the North East. The region had the lowest growth in GDHI per head between 2006 and 2011 at 11.2%, compared with 14.7% growth for England. Yorkshire and The Humber had one of the highest increases in unemployment rates between Q4 2007 and Q4 2012, increasing by 3.5 percentage points from 5.4% to 8.9%. At its most recent peak the unemployment rate was 10.2% in Q3 2011. The economic inactivity rate reduced from 24.0% in Q4 2007 to 22.7% in Q4 2012.
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SOURCE: SAVILLS RESEARCH, 2011 CENSUS, DCLG
The employment rate in Yorkshire and The Humber declined from 71.8% in Q4 2007 to 68.2% in Q4 2010. More recent data show it had still not recovered from the decline and stood at 70.2% in Q4 2012. This magnifies the impacts on ownership above.
HOWEVER,THE LARGEST INCREASE IN UK WORKFORCE JOBS, FOR JUNE 2015, WAS IN YORKSHIRE AND THE HUMBER, AT 37,000.YORKSHIRE AND THE HUMBER WAS RESPONSIBLE FOR 6.9% OF THE UK’S GVA IN 2011, AMOUNTING TO £90.9 BILLION. Manufacturing accounted for 15.3% of Yorkshire and The Humber output in 2010, compared with the average of 10.8% for the UK. In other respects the industrial distribution in Yorkshire and The Humber is similar to that for the UK excluding London, the South East and East of England. Changes in the North Yorkshire labour market were mostly positive recently. There has been a fall in the total number of Jobseekers Allowance (JSA) benefit claimants. There were also falls in the number of people claiming for more than six months, those claiming for more than a year and those aged between 18 and 24.
MARKET COMMENTARY
The York, North Yorkshire and East Riding Growth Deal has secured £122.2m in Government funding which will support the LEPs ambition to become a national and international centre for food, agri-tech and bio-renewables as well as promoting business growth investment, infrastructure investment and skills creation. It is estimated that up to 5,000 jobs could be created and 5,000 new homes built In June, there were 31.03 million people in work in the UK, 63,000 fewer than for January to March 2015 but 354,000 more than for a year earlier. There were 22.76 million people working full-time, 352,000 more than for a year earlier. There were 8.27 million people working part-time, little changed compared with a year earlier. The employment rate (the proportion of people aged from 16 to 64 who were in work) was 73.4%, little changed compared with January to March 2015 but higher than for a year earlier (72.8%).
Yorkshire has a strong labour market & a growing migrant worker market. This complimented by Empire selecting large towns & cities which reflect this. REFERENCES
http://pdf.euro.savills.co.uk/residential---other/rpf-q4.pdf
Comparing April to June 2015 with a year earlier, pay for employees in Great Britain increased by 2.4% including bonuses and by 2.8% excluding bonuses. In Yorkshire and The Humber, employment rose by 16,000 during the quarter to stand at 2.520 million giving an employment rate of 71.8%. Unemployment fell by 3,000. Ten out of twelve regions/countries saw a decrease in the level of unemployment over the last quarter, with the largest being Yorkshire and the Humber (down 30,000) followed by the North East (down 19,000). With the largest manufacturing employment base anywhere in the UK, West Yorkshire currently employs 160,000 including 47,000 in engineering alone. 66% of the world’s turbo chargers are manufactured in the areas around Huddersfield and Bradford. Key sub- sectors include textiles, electronics, printing, medical equipment, automotive engineering and aerospace and energy components. In South Yorkshire, Sheffield City Region is to benefit from a £180m EU funding programme which is designed to enhance economic growth, create jobs and boost skills training in the area. Finally, in East Yorkshire, the Port of Hull is one of the UK’s leading foreign- trading ports; handling in excess of 12m tonnes of cargo each year and nearly one million passengers take advantage of the ferries. In the region of 16,000 jobs in the city relate to port activity. 1,000 jobs are being created as part of Siemens £160m investment to build an offshore wind manufacturing site in East Yorkshire, with its port partner Associated British Ports (ABP) investing a further £150m.
REFERENCES http://pdf.euro.savills.co.uk/residential---other/rpf-q4.pdf http://pdf.euro.savills.co.uk/residential---other/yougov-survey.pdf http://www.ons.gov.uk/ons/rel/subnational-labour/regional-labour-market-statistics/october-2015/stb-regional-labour-market--october-2015.html http://www.ons.gov.uk/ons/rel/regional-trends/region-and-country-profiles/economy--june-2013/economy--yorkshire-and-the-humber--june-2013.html http://www.northyorks.gov.uk/media/23642/Monthly-economic-monitor-for-North-Yorkshire/pdf/North_Yorkshire_Economic_Monitor_August_2015.pdf http://researchbriefings.files.parliament.uk/documents/ SN02798/SN02798.pdf http://www.bdo.co.uk/yorkshire-report/a-regional-review
TEL: 01302 564 263 EMAIL: info@empirepropertyholdings.co.uk WEB: www.empirepropertyholdings.co.uk
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