Housebuilders have had an extremely difficult year as the housing recession deepened towards the latter part of 2008 with many needing to reschedule their debt position, drastically reducing staffing levels, closing regional offices and renegotiating material and labour supply contracts and stopping any further land purchasing. Given the seriousness of the housing market decline and uncertainty it is surprising that there has not been some consolidation to date, however the picture may change depending upon how long the market takes to recover. The new housing completions underperformance is underpinned by the fact that UK housing starts are estimated to have declined by 36% in 2008 to 140,000 – which is the lowest level of new housebuilding since 1924. Sales of new housing in England and Wales have declined considerably as is highlighted later in the report. Sales in the private sector plummeted to a level of 72,000 in 2008 – almost half of their level of 136,000 in 2006.

The public sector, whilst exceeding their targets for social and affordable housing completions, are struggling to sell low cost home ownership housing units. In addition, they will find it difficult to instigate the planned mixed-use regeneration schemes and to attract private sector investment – at least in the short term.

Sales of new housing in England and Wales have declined considerably as is highlighted later in the report. Sales in the private sector plummeted to a level of 72,000 in 2008 – almost half of their level of 136,000 in 2006. The public sector, whilst exceeding their targets for social and affordable housing completions, are struggling to sell low cost home ownership housing units. In addition, they will find it difficult to instigate the planned mixed-use regeneration schemes and to attract private sector investment – at least in the short term.

As a result of this substantial decline in housing sales, the volume housebuilders have focused their 2008 / early 2009 effort on preserving cash, through major cutbacks in land buying and introducing a variety of incentives to reduce their housing stock and work in progress. As a result, many have reduced their new site developments to an absolute minimum and are selling from stock to generate cash.

Conditions in early-mid 2008 have deteriorated rapidly with housing starts and completions well down on the previous year, followed by a series of increasingly pessimistic announcements from builders indicating severe problems in the sector.

Forecasting housing completions in such a volatile and declining market is difficult given that the industry has experienced a period of steady underlying growth for many years. Prospects are changing rapidly and, whilst 2007 was a good year with completions up around 4% in the UK, 2008 was a very different picture with completions declining to an estimated 176,400 as shown in the chart above. Forecasts for 2009 indicate further decline with levels reaching 113,000 completions in the UK. Given that the market starts to recover in late 2009 or early 2010, housing completions would start to rise a level of 140,000 in 2010 slowly increasing towards their previous level in 2007 of 221,000 by 2013.

Prospects for the housebuilding industry in the longer term are optimistic and a general under-supply of housing, relatively low interest rates and high employment are likely to increase demand once the current downturn has passed. In addition, the annual average rate of increase in the number of households in England is projected to be 223,000 per year until 2026, well above predicted levels of housebuilding.