While the economy shrank by over 20% as a result of lockdown, some sectors were hit harder than others. Most notably of course was retail and travel, however construction was also badly impacted with the ONS activity index falling 44% and most recent figures showing it around 25% lower than normal but heading back up again.
Many developments were put on hold as workers were not able to continue projects, planning offices closed and could not accept new applications and transactions halted as parties tried to figure out what was happening.
This shock is likely to have an impact further into the future than might be expected, so we investigate what could be the impact on this halt in development activity.
Looking at the same three areas as our other research piece on how consumers are paying more for outside space, we focus on Oxford, Edinburgh and Manchester.
Using data from the platform on residential developments we downloaded and analysed thousands of development applications, filtering based on the date on which they were granted and the dates on which construction began and is expected to complete we can get a sense of the upcoming pipeline across different locations.
The number of residential applications launched in the first half of the year had already declined between 2018 and 2019, a sign perhaps of a market that was already topping out by most indicators. However the number of granted applications in the first half of 2020 was half of 2019. Interestingly the number of units per application was also declining and at a much faster rate. Again this would be representative of the largest plots already being taken and developers having to find more exotic ways to make deals stack up. In the first half of 2020 the average development had only 7 units, which may be a reflection of planning offices doing the best they can to process applications, and the smaller and easier applications being the few which were approved.
We would expect then to see in H2 2020 the number of units per application rise again as larger and more complex schemes pass through planning.
By measuring the average time taken for a development to complete, from the date an application was granted through to the date works finish we can get an idea of what a typical pipeline looks like.
Unweighted this chart is shown below.
The typical development takes not much more than 15 months from approval to completion, however larger developments, the long tail to the right of the distribution, take much longer.
While the largest part of the disruption so far occurred in March-June, the impact of delays to granting development applications is not likely to be felt until September 2021 when projects which ordinarily would have started to complete at that point, simply won’t exist.
The ongoing government consultation into changing planning regulations in order to catch up that gap, inspire the construction and development industry, and gain some ground on the housing unaffordability problem may go some way to correcting this problem, however it remains to be seen if the government will be able to make enough of an impact in what has become a highly devolved and bureaucratic system.
Assuming the the supply and demand imbalance which has characterised the UK property market for decades remains, then the constriction of applications in the first half of this year may lead to further constrictions in supply towards the end of next year, resulting in increased upwards pressure on prices into 2022.
Time will tell!
© Treex 2020