House building slump threatens government targets

New house building in England has fallen by nearly 25% over the last three months raising fears that government targets for first-time buyer homes may not be met.

The latest quarterly figures from the Department for Communities and Local Government (DCLG) show that work started on 21% fewer homes between January and March 2008 than in the last quarter of 2007. The number of starts is down 24% on a year earlier.

The figures also reveal the number of homes completed fell by 12% compared with the previous quarter, and 18% compared with a year before.

At the same time, housebuilder Barrett Developments reports a 33% drop in the sale
agreed each week, compared with last year. It said that since January
an average one in four deals had fallen through and that market
conditions had “deteriorated significantly”.

The Council of Mortgage Lenders says the DCLG's figures mean the government is unlikely meet its target of building three million homes by 2020.

Last year Gordon Brown pledged to tackle the shortage of
property by easing up planning regulations to increase new builds, as
new household formations were increasing at a much higher rate than
property to put them in.

Katie Tucker, from mortgage broker John Charcol, says: “This strategy was fuelled by a desire not only to house everyone, but to keep property values from storming up as they were. This is not a factor now."

While a slowdown in new house building is bad news for first-time buyers, the traditional group of people opting for new build flats, Tucker suggests it could be a blessing for house prices.

"Assuming a healthy economy elsewhere and the continuing of new households being formed, while the supply of properties can't keep up with demand, it could a contributing factor to the recovery of the property market,” she says.

Meanwhile, the Home Builders Federation urged the government to take action to prevent widespread redundancies in the housing industry.

“Whilst we welcomed the £50 billion Special Liquidity Scheme announced by the Bank of England last month we believe more needs to be done to help first-time buyers in particular,” says HBF executive chairman Stewart Baseley.

"We have suggested a range of measure that we believe would assist. If action is not taken and taken quickly, in addition to the immediate threat to jobs then the government’s long-term housing targets are in jeopardy".

Rival Redrow, one of the
UK’s largest housebuilders, has already made hundreds of staff redundant as
a result of fewer reservations and more cancellations.