Mark Chalmers

“How weary, stale, flat and unprofitable seem to me all the uses of this world,” said the Prince of Denmark, and housebuilding executives probably think something similar when they wake each morning.  Changes in the planning system, and the scrapping of housebuilding targets by the coalition government, have affected developers by depressing land values – and of course they are still struggling with poor demand for their product.

Now, the value of housebuilders’ land banks, as well as disused buildings prime for conversion, have dropped, which is in effect a double hit.  Share prices were already depressed by the firms’ low output, and now the property assets on their balance sheet have been written down.  The companies are toiling because they can’t sell houses, and the land they bought is depreciating, too.  It’s ironic, then, that the subject of my previous piece, General Motors, offloaded old factories, a New Jersey golf course, and an abandoned church in Indiana, during its latest “fire sale” a couple of weeks ago.  I think the old investment mantra goes something along the lines of – “Always sell at the bottom of the market…!”

When the market is working properly, commercial firms often find that their old factories or offices are worth more as a piece of land than a working part of the company.  Although it seems crazy, the one-off receipt for the sale of the site is often more attractive than long-term returns from a manufacturing plant or warehouse built on it.  Perhaps there’s something in the old adage that land is one of very few things that they’re no longer making, and that finity used to push land values ever higher.  No longer.  Now most housebuilding firms are struggling to sell anything.

Last week, the Aberdeen developer Cala (aka The City of Aberdeen Land Association) went to the High Court in London to challenge the scrapping of those government housebuilding targets.  Cala argues that without primary legislation, the move is unlawful – and anyhow, there are no alternatives in place.  Their case is based on a 2000-house scheme in Winchester which has been refused planning approval by the local council.  That in itself is unremarkable – but Cala’s position is that it would be futile for it to appeal the decision, as there is no planning policy to judge it against.  It may become a test-case for the industry, because the National Housing Federation reckons that another 80,000 houses are caught in the same cleft stick.

How ironic that several seemingly paradoxical things are conspiring against the housing industry, just when the economy desperately needs it to receive a kick-start.  We are heading for a housing shortage – yet the government has scrapped building targets.  There’s a shortage of loan capital out there, lenders want 30% deposits, and the mortgage market is dead – yet we’ve just seen the first round of quantitative easing for decades.  Land is the cheapest it’s been for years – yet demand for it is even lower.  Tony Pidgely of Berkeley Homes says he’s even been offered land for nothing… unthinkable in normal times.

What happens next is anyone’s guess, but property analyst Alastair Stewart, of Investec, reckons there is a serious risk of a double-dip in house prices and land values, and he believes that the housing market is grinding to a standstill.  Given how many sectors of the construction industry have been devastated by recent government decisions – health spending curtailed by the end of PFI/PPP projects – education in England hit by the curtailment of Building Schools for the Future (BSF) – and defence by the recent spending review which indirectly threatened to close Scotland’s last three big shipyards – housing was one area where we might have hoped for an early recovery.  At the moment, the only active housebuilding sites are in east London where supply is enormous, thanks to the forthcoming Olympics.

The market elsewhere seems, to coin a phrase, weary, stale, flat and unprofitable.

My next piece will try to avoid politics, the recession and Shakespeare. ;-)