BUILDERS WANT ACTION TO AVERT CONSTRUCTION COLLAPSE

There is a real fear that job losses in construction could lead the wider economy into recession.

Industry sources say Persimmon is merely the first builder (and also one of the best-regarded in the City) to make its discomfort public following a sudden plunge in new home reservations against the same period last year.

Says one senior industry figure: "The belief is that Government will need to take definite action to arrest the slide, and there is a feeling that Caroline Flint, the new Housing Minister, has a better understanding of the problems than Yvette Cooper, her predecessor.

"Government will have to go further than propping up the banks, but its options are limited. It could reduce the stamp duty burden on for first-time buyers.

"It will have to work more closely with the industry, possibly to produce some sort of insurance policy which guarantees the price of a home over five years. Obviously there is little prospect of giving this cover over a shorter period."

Builders, like estate agents, fear the property slump is being accelerated by relentless media coverage that convinces potential buyers that they won't get a mortgage - and that the value of their home will crumble even if they do.

Says one leading figure in the industry: "The scarcity of mortgages is certainly exaggerated.

"Anybody with a poor credit rating, and those who missed a payment a few years back, will certainly have problems. But Mr and Mrs Average with a secure credit rating should actually be able to get a mortgage fairly easily, and we have to get that message across."

Builders say that if the current situation is allowed to drift, then widespread redundancies in the construction industry are likely at the end of corporate years and half-years in June.

The most obvious sign of the crisis in the new homes market is new flats standing empty in city centres, including Leeds, Manchester and Nottingham.

In the last big downturn, many unsold new homes were handed over to the public sector and made available for renting through housing associations.

That rescue seems unlikely this time - because housing associations across Britain indicate that they need family houses rather than flats in town centres.

Although the Government is calling for 240,000 new homes to be built each year, the industry achieved barely 200,000 in 2007.

In 2008 the total could fall as low as 125,000. Stuart Law at Assetz, the property investment company, predicts anything between 95,000 and 125,000 new homes is possible for 2008.

"We are in a rapidly reducing number of new starts," Law says. "Most other builders will follow Persimmon's lead, though they might not admit it. But the overall demand for housing has shifted to renting, and rentals are starting to shoot up.

"Because of this, I can see new house prices rising again before too long, possibly before the end of 2008. Overall demand for housing is still significantly greater than supply."

Laws say the new few months are a "great buying opportunity" for anybody seeking a new home: "It is tough only for builders and their shareholders, because builders are in the unwanted position of forced sellers."

Dale Norton of Romans, a leading estate agency in the Thames Valley which acts for many builders, says: "It is a fact that the secondhand market is falling, and the gap in prices between secondhand and new homes is getting wider.

"To get rid of their secondhand homes, vendors are taking price cuts of 10-15%, sometimes more. If they intend to buy new for their next home, builders will have to cut prices to accommodate them.

"But builders have had so many profitable years that they find it very difficult to get their heads around the new reality - and even when they do, their bean counters try to stop them cutting prices.

"Builders also have a problem where they have forward sold many units, often off-plan, and it is difficult to cut prices if earlier buyers are committed to paying higher prices."

Norton says the crisis is different to 1989-94, when high interest rates scared away all buyers. This time, he says, the desire to buy remains strong - providing people can get a mortgage.

"The internet means buyers are better informed about the market than in the last slump," Norton says. "They go online to see prices actually achieved, and are better at bargaining.

"Buyers who have sold their previous home and arranged a mortgage know they are in an extremely good position to try an offer."

Meanwhile, builders are critical of lenders now pushing hundreds of repossessions into the auction room.

Says one: "Anybody keen to buy a 12-month-old flat in the centre of town is likely to start looking in the auction room - where prices are 25-30% below those sought by builders.

"It would often make sense for lenders to rent out some of the properties which they have to take back. But usually, they have no facility to do that, and they simply use the auction room to set a limit to their loss."

Latest figures from Smart New Homes show the average price of a new home dipped slightly during March to £255,800 - against £260,000 in December 2007. Apartments, accounting for 52% of the units on sale, average £227,700, while detached houses averaging £309,500 account for just over 27% of the market.

INFORMATION: Assetz (0845 400 9000 and www.assetz.co.uk/investors)

:: A GOOD 'SEMI' CAN STILL TICK ALL THE BOXES

Although a semi-detached house is the most popular type of home, builders have largely contrived to ignore this demand in recent years so that 'semis' account for little more than one in 10 of all new homes.

Those are the conclusions of an analysis from Nationwide BS which says 'semis' accounted for just 13% of new homes in 2007 - against their 32% share of the total housing market.

By comparison, flats accounted for 43% of new home registrations - although this imbalance of output can be attributed to Government and local planners rather than to builders themselves.

Nationwide BS says the semi is really king of the housing market in North-West England, where it accounts for 43% of all homes. In the South-West and the outer South-East, semis account for 30% of the housing stock, while it's 23% in Scotland and just 21% in London.

Nationwide also says the semi has managed to shrink since the Second World War: in the 1930s the average semi had 1,227sq ft of living space, falling to 1,059 sq ft soon after the war.

Newly-built semis are now back to an average 1,190 sq ft - and because many have a second bathroom and even a fourth bedroom, other rooms might be smaller to get everything in.

Three-quarters of new semis also have at least two bathrooms, compared with just 30% of existing semis.

On average, semi-detached houses have risen by over 50% in value in the last five years - largely in line with the rest of the market - to an average £174,500.

The cheapest semis are found in the East Midlands, for an average of just over £142,000. Scotland and Northern Ireland have seen the fastest rises in recent years, while London semis average more than £330,000 apiece.

:: RENTALS SOAR AS OWNERS CAN'T SELL

They are called the "In Betweens"- and they are becoming a major new force in the housing market, says Catherine Manning, director of the regional lettings department at agents Hamptons International.

"In Betweens" play the market skilfully by selling their last home - and going into rented accommodation for several months until a suitable property comes along at a good price," she says.

Their tactics could look even smarter if prices continue to slide.

"So many people, including families, are keen to make themselves 'highly proceedable' in the market," Manning says. "They make themselves chain-free by selling their previous home, and then they intend to keep looking as the market softens further.

"The more you want to spend on your next home, the more you are likely to save."

Hamptons International, a leading estate agency in Southern England now owned by international real estate company Emaar Properties, confirms a 33% surge in the number of new rental applicants outside London since the start of the year.

"Applicants are seeking quality homes to rent with strong commuter links into London, and good state and primary school nearby," Manning says. "March was a particularly busy time for relocation agents, driven by national and international companies relocating staff to commuter areas."

Manning says strong demand has triggered some properties going to "best bids" in hotspot locations. Strongest yields, she says, continue to come from one and two-bedroom properties.

When they become available, many properties have recently seen a sharp rise in rent: a four-bedroom modern townhouse in Guildford, Surrey, saw its rent jump from £1,650 per month to £2,000, A luxury property in Sunninghill, Berkshire, saw its rental leap from £6,500 to £9,000.

Many properties are put into the rental market when owners can't get the price they want from a sale, Manning says.

"Providing they hold at least 15% equity in the property, owners can get a Buy to Let mortgage and become a landlord," she says.

Hamptons says some of the best rental yields are earned on properties outside London, including Brighton (4.32%); Hove (4.22%) and St Albans (4.02%). Yields are also satisfactory in Guildford (3.85%; Oxford (3.83%) and Bristol (3.37%).