The lowdown on the slowdown...

Whilst the state of the housing market continues to be the number one dinner party conversation topic, Professor Michael Benfield has an interesting think piece in the latest CONSTRUCTOR magazine, giving his opinion on supply and demand, and the sustainability issue.

"Despite media hysteria over falling house prices, sub-prime mortgages, and the spectre of another early nineties style 'negative equity' crisis, UK house builders face a rosy future", claims Timber Frame housing guru, Professor Michael Benfield, in a letter to house builder clients throughout the UK.

He points out that, unlike our cousins in the United States, the UK has a housing shortage – not an oversupply. And, paradoxically, while current cut backs in mortgage lending may cause a temporary downward blip in house prices, leading many national volume house builders to reduce new starts, this will only increase the shortage.

When the effects of regulatory changes to promote 'sustainability' are added in, "House builders are faced with significant cost increases which they can only recover by putting house prices up, or paying less for land" he claims.

But he predicts that if this happens landowners may be discouraged from selling, resulting in less development land, and therefore even fewer new houses, being available. Such shortage he considers is likely to put more upward pressure on land prices and, since most builders have to replace the land they build on to remain in business, lead to them setting higher current and future house prices to pay for this.

Coupling all of this with the huge difficulties in obtaining planning permissions that increasingly continue to make available development land scarce, he further predicts that, despite Government targets for 240,000 new homes a year, "Output will fall far short of demand and upward pressure on house prices is likely to continue for several more years at least." While acknowledging that in the longer term increased building costs may cause land prices to remain static, or even drop, he claims that "Unless the whole economy collapses, the pressure on selling prices of new houses is up."

Michael Benfield can be contacted at www.benfieldatt.co.uk. More on Constructor magazine here.

Reproduced courtesy of Constructor magazine.