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Construction Output Falls In January

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From Reuters:

British construction output unexpectedly fell in January at the sharpest monthly rate since late 2013, dragged down by a worsening decline in housebuilding, official data showed on Friday.

Construction output shrank by 2.6 percent in January -- confounding economists' expectations for a rise of 1.2 percent -- after rising by 0.6 percent in December, the Office for National Statistics said.

Total new housebuilding dropped by 5.0 percent on the month, the steepest fall since February last year.

While most signs points to a strong start to the year for Britain's economy, construction output has disappointed.

The ONS revised down its estimate for construction output in the fourth quarter of last year to show a fall of 2.2 percent.

The figures showed the first year-on-year decrease in construction output in January since May 2013, falling 3.1 percent.

The ONS linked January's fall to weak mortgage lending and high house prices, as well as skill shortages among builders and tight funding conditions.

There were also sign the weakness will persist. New construction orders in the fourth quarter fell 2.9 percent from the previous quarter, led by a 6.5 percent fall in all new housing.

For 2014 as a whole, new housing orders fell 7.1 percent, a stark contrast with growth of nearly 40 percent in 2013.

ONS Release: http://www.ons.gov.uk/ons/dcp171778_398045.pdf

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Guest

Hmmm.... wonder if the construction industry has realised the volume of flats in the pipeline is going to lead to huge oversupply. Anyone got stats for number of new builds in progress divided by number of properties bought per year?

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Shows how dependent on FLS and HtB the house builders actually are. Osborne will need to up his deficits to maintain the illusion of recovery.

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Hmmm.... wonder if the construction industry has realised the volume of flats in the pipeline is going to lead to huge oversupply. Anyone got stats for number of new builds in progress divided by number of properties bought per year?

Are you in London?

No flats going up by me. Several sites which have sprung up around the town are all for luxury four bed detacheds.

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Why does supply and demand not seem to 'work' for the housing market?

You'd think it would be impossible not to reap vast profits from constructing homes.

In theory, many people should be entering this market and finding novel ways to compete with each other

Where are the real pressures coming from on the housing supply chain?

Is it down to land use / planning restrictions (i.e. within government control)?

Or is it really because the market is an oligopoly (few big players) who are acting as a cartel to limit supply (land banking, etc)?

Why can't we all just build our own homes using local tradesmen?

Potentially it is supply lag, like hiace_drifter is saying, and lots of new homes are going to come online soon.

Does anyone really know?

Btw, I know the government meddling with the market is not helping matters, but there was already a supply problem before HTB / FLS came along.

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Btw, I know the government meddling with the market is not helping matters, but there was already a supply problem before HTB / FLS came along.

Someone can give you a better answer than this, but I believe the builders speculatively bought a lot of land last decade which, left to a freer market, they would be unable to develop in today's economic environment for a worthwhile profit. They however know that of building figures drop, they will get state support to boost prices to a level where the land does become profitable.

Landbanking should IMO, be subject to considerable tax if ground hasn't been broken within 18 months. Alternatively, the builders who did jump into a speculative bubble should be made to face the consequences of their action and go bankrupt. In such a process, the skills to build homes won't be lost - builders and site managers can be hired by new firms who will respond to the demand out there at a price people can afford to pay on their own.

Edited by rantnrave

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Someone can give you a better answer than this, but I believe the builders speculatively bought a lot of land last decade which, left to a freer market, they would be unable to develop in today's economic environment for a worthwhile profit. They however know that of building figures drop, they will get state support to boost prices to a level where the land does become profitable.

Landbanking should IMO, be subject to considerable tax if ground hasn't been broken within 18 months. Alternatively, the builders who did jump into a speculative bubble should be made to face the consequences of their action and go bankrupt. In such a process, the skills to build homes won't be lost - builders and site managers can be hired by new firms who will respond to the demand out there at a price people can afford to pay on their own.

So the idea here is that the house-price bubble is riding on the back of a previous land-price bubble?

They must have paid a blinking fortune for some pretty scrappy land if they can't make a profit even at these prices!

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Are you in London?

No flats going up by me. Several sites which have sprung up around the town are all for luxury four bed detacheds.

Only anecdotal but my journey to work takes me through clapham and up to kensington olympia.

In Earlsfield (1mile outside Clapham Junction) they are building a large new flat block of 193 units (£41million), around imperial wharf blocks are springing up either side of station at breakneck speed must be around 400 units and leading into west brompton there is a new earls court construction site that is intended for "luxury homes".

At Kensington near Olympia they are extending building sites completed in the last year by what I would guess at a new construction of another 200 units. And of course there is the Earls Court exhibition centre conversion to flats that was recently announced I think.

ALOT of construction basically.

All of them will be ridiculously high priced of course... no-one I know could afford any of them. I think the Earls Court development is providing 2/3 bed flats starting at £750k...

Must be intended for Russian/Chinese investors, which I hear are on the decline!

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So the idea here is that the house-price bubble is riding on the back of a previous land-price bubble?

They must have paid a blinking fortune for some pretty scrappy land if they can't make a profit even at these prices!

Outside the SE, a lot of sold prices are within 10% of where they were ten years ago. There's been some hefty increases in the cost of building materials since then too.

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In Greenwich, London, there is a bucket-load of new construction happening.

There are 600-odd new apartments in New Capital Quay, and 500-odd in "The Movement" near the station, and thousands going in on the Peninsula near the Dome. There must be hundreds more that I don't even know about in East Greenwich and Deptford.

They are, by and large, doing all this without destroying heritage architecture, which is to be welcomed.

There has been a bit of controversy about who they are selling too though - out on the Peninsula one of the firms was called out for mainly marketing in Chinese. There is a worry that the flats are really "buy to leave" investment assets of low build quality and low utility to the city. In effect this kind of speculation just destroys the city -- it kills the golden goose.

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Are you in London?

No flats going up by me. Several sites which have sprung up around the town are all for luxury four bed detacheds.

Nope sussex... but I read a while back that London has 54 THOUSAND million pound properties in the pipeline...

http://www.icis.com/blogs/chemicals-and-the-economy/2015/02/54000-millionaires-needed-to-buy-new-london-apartments/

Edited by Guest

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Only anecdotal but my journey to work takes me through clapham and up to kensington olympia.

In Earlsfield (1mile outside Clapham Junction) they are building a large new flat block of 193 units (£41million), around imperial wharf blocks are springing up either side of station at breakneck speed must be around 400 units and leading into west brompton there is a new earls court construction site that is intended for "luxury homes".

At Kensington near Olympia they are extending building sites completed in the last year by what I would guess at a new construction of another 200 units. And of course there is the Earls Court exhibition centre conversion to flats that was recently announced I think.

ALOT of construction basically.

All of them will be ridiculously high priced of course... no-one I know could afford any of them. I think the Earls Court development is providing 2/3 bed flats starting at £750k...

Must be intended for Russian/Chinese investors, which I hear are on the decline!

I was in the UK 2 weeks ago and took the overground between Clapham and Shepherds Bush at night. Saw some of the developments you describe. What struck me though was down the Thames waterside as the train arrived / left Brompton. Lost of these tower blocks had no lights on. I assume they were unoccupied , as it was around 9pm.

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I was in the UK 2 weeks ago and took the overground between Clapham and Shepherds Bush at night. Saw some of the developments you describe. What struck me though was down the Thames waterside as the train arrived / left Brompton. Lost of these tower blocks had no lights on. I assume they were unoccupied , as it was around 9pm.

Absolutely - much of the new build flat blocks that are observed from ShepBush->Clapham Junction train journey, including those on waterfront, show very little signs of life. Even the ones that have been complete for a year or two.

I pass them daily and often make an assessment.

I have no idea how many are actually occupied, but it does appear not many!

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The flats, another selection of which are pictured, were built to house 23,000 athletes and officials during the London 2012 Games - and were sold to the company before the Olympics had even started

article-2586458-1C7A874800000578-818_634
As the capital’s property market continues to boom the deal also included six little-publicised plots next to the village, for which there is already outline planning permission for 2,000 residential flats. This includes permission for a 50-storey block – which would be the tallest building on the Olympic Park after the ArcelorMittal Orbit sculpture and which could prove a goldmine for its overseas buyers. There is also outline planning permission for two 32-storey blocks, a hotel and a shopping and leisure development.
Bert Schouwenburg said: ‘We got a shocking deal when the Olympic Village was sold. ‘Taxpayers’ money was used to build it and then it was sold for a song. The Government didn’t know what to do with it and they ran out of money to keep it.’

He added: ‘The area around Newham is also among the poorest in London, with long waiting lists for council houses, but it seems likely they will be sold as luxury flats to speculative overseas investors, many of which could then sit empty.’

That's lots of apartments in east London.

Edited by rollover

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these tower blocks had no lights on. I assume they were unoccupied , as it was around 9pm.

I have mentioned before, that there seems to be a greater oversupply of housing in the uk than I have ever seen in my life. How do prices stay high? The same way oil prices were kept high depite the last 7~8 years of oversupply.

That said, I'm not sure how easy it is to judge from lighted windows. Somehow in European cities, blocks of flats only ever "look" half full at most, although presumably most are fully occupied.

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Why does supply and demand not seem to 'work' for the housing market?

Free market principles including supply and demand do work when they are favorable to the privileged.

If, at any time, the free markets do not work to the benefit of the privileged they are manipulated or even scrapped all together in favour of Soviet style 'Command & Control'.

The housing 'market' is no different to any of the other 'markets' ( like the 'labour' market).

Just a few artifacts of the Toff Soviet infrastructure;

QE,

Gold manipulation,

Farm subsidies,

Energy subsidies,

Mass immigration,

Help to buy,

Right to buy,

Housing Benefit,

Working Tax Credits

Anyone who seriously believes we live in a 'market economy' is deluded to the point of insanity.

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Most of these tower blocks had no lights on. I assume they were unoccupied , as it was around 9pm.

No, it's just the occupiers are huddled inside around a single candle because they maxed their mortgage and now cannot afford lighting :)

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