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Demand for UK New Build Investment is Up But Supply is Still Short

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    New Build Sales Market Benefits From Pent-Up Demand

    In a new report from property expert Savills, market data reveals that there is demand for newly built homes, but housing delivery is set to fall to its lowest level for a decade.

    During early 2024, the new home sales market has shown positive signals with an uptick in viewings and reservations compared to last year’s figures. NHBC’s sentiment survey showed that demand across the country has moved into positive territory in March for the first time since September 2022’s mini-budget.

    Net reservations jumped to a net balance of +21 in February compared to the year before and Savills regional new home sales also saw an increase in reservations. Sales rates among major housebuilders and property investment developers have risen as well, reporting figures in Q1 2024 that were up in the second half of 2023. With demand on the rise, more buy-to-let investors are opting for new-build investments.

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      Will New Build Investment Help Meet Pent-Up Demand?

      There have been promising signs of market recovery observed in the first quarter of the year and this uptick in activity suggests there was pent-up demand. The cost of debt easing has encouraged these buyers to finally enter the market, taking advantage of falling mortgage rates in January and February.

      Savills predicts that a further rate cut will likely result in another flurry of activity in the second half of the year. They believe that there will be increasing activity and capacity for price growth from 2025 onwards thanks to a stronger economic performance and a steady reduction in the bank base rate.

      However, with a worrying lack of supply, many are wondering if the new homes market will be able to keep up with the recovery and subsequent demand. Completions have been down for the last few years, and the delayed impact may start to be felt even more in the near future. Savills states that all sizes of developers have recorded a similar reduction in the volume of plots starting on-site. Starts on sites of all housing, including rental homes, are down -24% and private units are down -27% in the year to Q1 2024 when compared to 2023.

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      Many Regions Struggling to Meet Housing Demand

      The undersupply of housing has been an issue in the UK for many years, and Savills has identified markets that are under increasing pressure as their new housing pipeline shrinks.

      New home delivery is set to fall to its lowest level for a decade. It was revealed that 35% of local authorities across England did not meet housing needs in their area over the past year and the situation is not improving. This includes London, much of the South East, and parts of the North. For example, Greater Manchester has seen starts on site fall by over 40%, suggesting a need for more Manchester new builds.

      Savills states that this information points towards an opportunity for developers: “The metrics point toward distinct areas where there will be a shortage of homes and lack of competition in a couple of years’ time, just as the housing market is returning to growth. Developers with planning consent should push on with their sites in order to be best positioned to meet rising demand from buyers who will be eager to transact – as mortgage rates reduce to a more affordable threshold.”

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      Jessica Ferris

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      Jessica Ferris is a property writer at RWinvest, helping our readers stay ahead of property market trends with the latest news and statistics.