1. Board Development Session

2. Housing Market Update Sentinel Housing Selina Clark – 14 th October 2013

3. 3 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Outline >Market context >Differential performance in house price ‘recovery’ >Interest rates and low turnover a key support for pricing >Low housing supply >High proportion of households priced out of market >Extra pressure on rental tenures – rental growth overstated >Working from the national context to tailoring policy to local market dynamics >Understanding dynamics of local markets – pricing, tenure, demand, availability >Cost of accessing different tenures for households – impact on demand

4. 4 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Market context © Hometrack 2012

5. 5 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Residential capital values across regional cities >The profile of capital growth and recent recovery in residential values by UK city varies widely >The relative performance reflects local economic and demand side factors.

6. 6 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Relative performance over the last 6 years >The recovery in residential values by UK city varies widely reflecting local economic and demand side factors. London (All) Oxford, Cambridge Birmingham, Manchester Newcastle Edinburgh Glasgow Liverpool Leeds Bristol Swindon Plymouth Reading

7. 7 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Coverage of house price growth across 3000 postcode districts (% yoy) >Hometrack have analysed house price growth across 3000 postcode districts (PCD) of UK >Chart shows % of PCDs registering price rises by level of growth >Only 5% of country registering +10% growth. >Areas in 5-10% have grown to over 20% as rises spread to outer London and S East >Real impetus for improvement in indices is expansion in markets rising 0-5% as markets recover off a low base. >Incomes growth needed to support sustainable growth Source: Hometrack

8. 8 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity What explains level of house prices and drivers? >Comparison of actual house prices against implied house price. >Implied house price is what could be bought using 35% net income to meet mortgage repayments at prevailing LTV and average mortgage rate over time. >Clear disconnect between actual and implied prices in late 1980s and mid 2000s. Impact of lower interest rates clear over 2008/9. >Implied prices sensitive to changes in mortgage rates.

9. 9 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Different mix of buyers setting prices 41% buy to let and cash buyers >Chart shows volume of sales by type of buyer >Cash buyers (including cash investors account for one in three sales nationally. >First time buyer volumes on the rise while existing owners are less likely to move. >BTL, FTB and % cash buyers are net new demand (i.e. don’t add to supply hence upward price pressures). -57% -31% -50% -18% Source: Hometrack

10. 10 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Turnover / market liquidity supporting prices >Turnover as important as prices >Historically low turnover currently at just 4% – a move every 25 years >Exacerbated by cost of moving - stamp duty and static prices >Low churn creates scarcity and supports prices – worst for family housing >Market opportunity for builders who deliver supply into market

11. 11 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Private housing starts – rolling 12 months >New private housing starts are up by 67% from the 2009 low. >Total starts still less than half the level seen in 2007. >Recovery in starts for houses stronger than flats. Buyers with embedded equity. >Focus on margins rather than volumes by developers. >Higher average selling prices and product that ties up less working capital. Source: Analysis of NHBC data

12. 12 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity % private housing starts by type >Marked shift towards 3 and 4 bed family housing accounting for 70% housing starts >Apartment volumes down nationally with main focus in London. >More 2 bed houses than 2 bed flats. Source: Analysis of NHBC data

13. 13 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Residential rental growth – 2 bed median Source: Hometrack >Rental levels vary dramatically between London and rest of England by factor of 2x >Rental growth for 2 bed homes across the S East and S West has averaged 1.8% pa (nominal) over last 3 years >Rental growth strongest in London averaging c.5-7% pa on affordability pressures and higher occupancy levels

14. 14 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Private rental market highly localised Source: Hometrack >The private rental market is high localised. 50% lettings occur in just 6% of the country >Hometrack have developed a classification based on size, coverage and liquidity of local rental markets >Mature - Activity across all property sizes - lower risk on voids and accurate assessment of rents >Active - Good liquidity for certain property sizes but higher risk over voids and rental levels for less liquid property sizes >Inactive - Low liquidity across the market and risk of voids and challenge accurately setting rents

15. 15 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Private rental delivers a different size of home Source: ONS >Bedroom numbers drive rents and pricing levels >Private rented sector delivers a smaller size of home >74% owner occupied homes are 3+ bed >62% private rented homes are 1 and 2 beds

16. 16 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Tailoring policy to work with market imbalances and opportunities © Hometrack 2012

17. 17 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Income to rent and income to buy Source: Hometrack

18. 18 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Income required to access housing – Basingstoke (2 bed) Source: Hometrack calculations

19. 19 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Income required to access housing – Hart (2 bed) Source: Hometrack calculations

20. 20 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Income required to access housing – Surrey Heath (2 bed) Source: Hometrack calculations

21. 21 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Income required to access housing – Winchester (2 bed) Source: Hometrack calculations

22. 22 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Income required to access housing – Rushmoor (2 bed) Source: Hometrack calculations

23. 23 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Income required to access housing – Eastleigh (2 bed) Source: Hometrack calculations

24. 24 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Income required to access housing – Test Valley (2 bed) Source: Hometrack calculations

25. 25 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Key messages >Housing market facing a wide range of pressures across tenures >Intervention and support maintaining relatively high house prices >Housing markets are highly diverse across local areas and sub-markets >Affordability varies across tenures >Not all tenures work in all markets

26. 26 © Hometrack 2013 Specialist insight on residential property value, risk and opportunity Hometrack 6th Floor, The Chambers Chelsea Harbour London SW10 0XF enquiries@hometrack.co.uk www.hometrack.co.uk

27. Development Programme

28. Introduction 1.Sales 2.Market 3.Growth

29. Leigh Road outperforming assumptions

30. Sales Achieved 100% Leigh Road outperforming assumptions Sales period 2 weeks Valuation +2% 1 st tranche 53%

31. Wrecclesham Road outperforming assumptions

32. Valuation +4% Sales off plan 100% 1 st tranche 45% Sales period 0? weeks Wrecclesham Road outperforming assumptions

33. East Anton mixed performance

34. Sales Achieved 35% Valuation Houses ↑ Flats ↓ 1 st tranche 46% Sales period 12 weeks

35. QEB mixed performance

36. Sales Achieved 56% Valuation +1% 1 st tranche 43% Help to Buy vs 1bf’s Sales period 4 weeks

37. Sales Review Strong demand continues for Shared Ownership Large variances on house types; TypeSales period 3BH8 wks 2BH3 wks 2BF19 wks 1BF30 wks £5.4m - £17.9m Strong capacity and surplus from completed project Competition

38. Market Optimism returning in land market Local Authorities remain pro growth, lack of long term sites All markets buoyant Competition strong on prime sites Unsuccessful Bidding Activity, up to 50% below winning bid Eastleigh Fleet Basingstoke Wokingham

39. Collaboration / JV Strategic JV arrangements to deliver new homes JV board, jointly controlled Not site specific Limited company or LLP Not exclusive arrangement Capitalisation Interest from & – different offers Who else is doing this – GTL & Thames Valley (£50m), Barratt (Group 2bn GDV)

40. Construction Management Act as lead contractor on new developments Efficiencies in development costs through control of supply chain, increased risk Undertake construction activities for parent Internal / External? Skills gap or market purchase? Purchase may bring added benefits? Could outsource if successful Who else is doing this - L&Q (£50M), Hyde (£15M)

41. Cost sharing Groups Vehicle to recover VAT on: procurement of goods / services Include overheads (legal, staffing resources) Must be a separate legal entity VAT recovered through supply of services Scale needs to be considered

42. Discussion

43. Board Development Session