Housing starts slump by almost a quarter

Housing starts slump by almost a quarter

The number of new houses being built slumped by almost a quarter in the first three months of the year even before the worst of the credit crunch hit, government figures showed yesterday.

The Department for Communities and Local Government said construction began on 32,144 houses in the first quarter of the year, a fall of 21.5% from the final quarter of 2007 and 24.4% down compared with a year earlier. The figures come after many of the country's major builders have reported declines of up to 70% in reservations for their new-build houses and flats, and anecdotal reports that big job cuts are looming in the industry.

Stewart Baseley, head of the Home Builders Federation, said: "While the figures are no surprise to the struggling home-building industry, they are a stark wake-up call to government, with clear implications in the short-term, for the wider economy and for long-term housing targets."

A key government policy commitment is to raise the number of houses being built to 240,000 a year by 2016 and a total of 3m by 2020. With only 32,000 started in the first quarter, the industry would fall at least 50% short of the target this year.

Although Baseley welcomed the government's plan to provide £200m to allow housing associations to buy up unsold properties or put them into shared ownership, he said they did not go far enough.

"If further action is not taken and taken quickly, in addition to the immediate threat to jobs then.....continued below

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the government's long- term housing targets are in jeopardy," said Baseley. Estimates put the number of people employed in building houses at about 300,000 but many more are employed either directly or indirectly in servicing the housing industry, such as solicitors, estate agents and removal firms.

Housebuilders privately admit to being on the verge of implementing mass layoffs in the next few weeks.

Most experts expect the housing market to get worse. Prices have fallen 4-5% from last summer's peak and many economists think prices could fall by up to 30%. Even Caroline Flint, the housing minister, inadvertently revealed this week that she thought prices would fall 5-10% "at best".

She said yesterday: "It is always the case that there are short-term trends and different rates of progress towards any target, and housebuilding is no exception, especially in the current difficult market conditions caused by the global credit crunch. But it is important to remember this is a long-term target, and the fundamentals for a healthy housing market over the long-term are in place."

Howard Archer, an economist with Global Insight, said that the sharp slump in house-starts in the first quarter reflected housebuilders' concern about the outlook for the sector, as activity and prices buckle under the "toxic combination" of elevated affordability pressures and very tight lending conditions.

Conditions worsened yesterday in the interbank lending market known as Libor, which governs much of variable-rate mortgage lending. The Libor rate for three-month sterling funds rose sharply on the view that further interest rate cuts were unlikely in the wake of the Bank of England's quarterly inflation report, which warned that inflation was likely to rise further from its already elevated level.