Despite the government’s abolition of regional plans and predictions of stagnant house prices, the North East is building on signs of recovery in its residential market, with three developments set to deliver more than 2,500 homes, writes Karen Day
While there have been positive noises from the North East’s residential market over the past year, housebuilders, as a rule, remain cautious.
Developers report steady sales, and there are three schemes in the pipeline that are set to deliver more than 2,500 homes to the region. But despite an uptick in optimism, market growth is lagging behind that of other regions and there are predictions of a turbulent few years ahead.
The North East has long battled a peculiar set of conditions, with the market suffering a chronic oversupply in its depressed urban areas, while operating in a boom and bust fashion in its more robust districts.
But despite the challenges inherent in the market, the region has registered a tenuous recovery over the past year.
Tim Haggie, chairman of the North East Property Forum, points to the increase in land option deals as a sign of renewed confidence. He explains that developers have moved away from paying landowners only once sales have been completed, and turned back to the more regular practice of signing exclusive land option deals.
There are also examples of developers making progress with schemes. For example, Bellway Homes is set to begin demolition on a 40-acre site in Stockton-on-Tees to make way for 474 homes.
In Sunderland, St Modwen has been granted planning consent for a £10m development, including 260 family homes. Regional director Stephen Prosser says the company is seeing signs of improvement: “There is activity but it has been patchy,” he adds. “It’s about finding demand and providing the correct product for the correct price in the right place.”
Then there is Scotswood, Newcastle council’s scheme to create a community in the west end of the city. After two years of delays, progress has finally been made after a developer, the BKY consortium, was appointed (see box).
But this spurt of activity might be short-lived. According to Savills, house prices in the region have tumbled from 2% growth in 2009 to a 3% decrease this year. Land values are also 61% off peak prices – compared with 37% in the South East – and Savills predicts that house prices will not rise again until 2013.
There is also the added complication of the abolition of Regional Spatial Strategies, and the likelihood that the 12 local authorities in the region may significantly revise their housing development targets and land allocations, further stagnating the market.
The regional plan set a target of an additional 128,900 homes for the region between 2004 and 2021. Since the demise of the RSS, South Tyneside has already cut its target by nearly 2,000 homes. Newcastle and Sunderland are reviewing allocations.
“It’s going to mean less housing land allocated by local authorities and, therefore, there will be less potential for developers,” says Haggie.
He adds, however, that the revisions may not have a significant effect in the short term, with developers building only when they are convinced that there is demand. Ian Prescott, regional land director at Keepmoat Homes, and spokesman for the BKY consortium, says that local authorities are “just getting their heads around” this situation.
“Developers are trying to inform local authorities where developments will be successful,” he says. “Gone is the era where land acquisition and development was easy. We’re in a challenging market – local authorities need to understand that.”
Scotswood gets under way
After nearly a decade of demolition and compulsory purchase orders, the Scotswood estate in Newcastle is filled with heavy machinery.
As part of a £19m infrastructure project, old mine shafts are being capped and grassy meadows prepared for the start of one of the North East’s largest regeneration and housing projects.
The 60-hectare site will finally be delivered through an urban regeneration vehicle – a jv between Newcastle city council and the BKY consortium, which comprises Barratt, Keepmoat and Yuill Homes. The parties will finalise contractual arrangements for the 15-year, £265m partnership in November. Construction is due to begin in 2011.
The site will include 1,800 homes and is designed to attract families into the west end of the city after decades of economic decline. It will predominately offer two- to five-bedroom homes with gardens, including patio areas and allotments, to suit the site’s slope.
The scheme will include an affordable offer: 10% rental and 15% shared equity, to provide a tenure mix. The consortium is also planning a combined heat and power plant and a primary school to complement the area’s new academy.
Ian Prescott, regional land director at Keepmoat Homes, says Scotswood has long been a target. He says that it is exceptionally well located, close to the city centre and on a “super” site with a south-facing slope.
The three developers, which he says have worked together before, will operate competitively across the sales contracts, which have fixed returns. The development contract features a 50/50 share arrangement with the city council, which will provide all the land and infrastructure development.
“This pushes the development profits into the jv so the public sector gets a share of returns,” says Prescott.
