If there's one sector that's weathered the economic storm created by the COVID-19 global pandemic it's residential development. Whereas most sectors are still reeling from the fallout of the virus, the housing market has demonstrated remarkable resilience, relatively speaking.
At the beginning of the year no one could have foreseen just how bad the next eight months were going to be. For the private housing sector, it looked like being another year of growth. According to the Bank of England (1), Q1 saw a 6.1 per cent year-on-year increase in the value of new mortgage commitments.
Unsurprisingly, following the national lockdown in March, statistics for the UK housing market started on a downward spiral. Builders stopped building and buyers stopped buying. As per the Government's instructions, the majority of housing construction sites temporarily shut up shop. The knock-on effect meant that during the second quarter of 2020, new home registration levels were just 20,102, less than half the number in Q2 2019 (2).
At the height of the first wave of Covid-19 in the UK, around 2,600 private residential building projects, with an aggregate value of £40bn, were shut down (3).
However, in June, as many of the building sites began to reopen, following the easing of lockdown restrictions, activity began to pick up, driven by pent-up demand and government incentives to kick-start the housing market. By August, the majority of housing developers reported that sites were operating at around 80 per cent of typical productivity.
Despite the operational challenges posed by the pandemic, developers have adapted well to the changes. At the smaller end of the scale (projects with a value of £1 - £5m), I have seen first-hand the lengths developers have gone to ensure their sites are Covid compliant, putting in place necessary safety and social distancing measures.
Managing the supply chain and the provision of sub-contract labour in order to minimise the impact on construction programmes and cashflow was a major challenge for many. Keeping clear lines of communication open with the bank, suppliers and buyers was crucial.
Inevitably, despite best efforts to claw back the lost time as a result of the lockdown, schedules have slipped and as a bank we have to be flexible with our lending, working collaboratively with borrowers to ensure their lending needs are met. Ultimately, it's about delivering much needed new homes to the market and throughout the Covid crisis I have been reminded why I love working in this sector, interacting with people who are all pulling together in the same direction.
Clearly, we are not out of the woods yet where Covid-19 is concerned and the housing market may well yet face more tough times ahead.
For now, however, the market is buoyant. According to the latest RICS survey, in September 52 per cent of surveyors reported rising levels of new buyer enquiries. New sales instructions also rose for a fourth month in a row, while agreed sales were also up during the month across all parts of the UK. (4)
What impact the introduction of further lockdowns will have on growth is yet to be seen but assuming the economy bounces back in 2021, according to property consultants Savills, housing delivery could return to 2019-20 levels by 2022-23, following renewed buyer and housebuilder confidence. (5)
Of course, the advent of a vaccine sooner rather than later could be a game changer in more ways than one and the shot in the arm the housing market needs, giving confidence to builders, buyers and lenders.
Secure Trust Bank's real estate team provides lending facilities of £1m-£45m to residential and commercial property developers and investors, from SME housebuilders to UK-based funds. The bank has committed £100m specifically to assist SME housebuilders and property developers to get their projects off the drawing board and on to site, with flexible loans of £1m - 5m.
References:
(1) Bank of England 'Mortgage Lenders and Administrators Statistics, 2020 Q1'
(2) NHBC 'New home registrations gain momentum after lockdown slump'
(4) RICS 'September 2020 UK Residential Market Survey' (PDF)
(5) Savills 'What impact will Covid-19 have on future housing supply in England?'