Developers cannot sell houses because potential buyers cannot get mortgages
Housebuilders have good reason to dislike the stock market. Consistently underrated in good times, they have been terribly punished in bad. Well-run companies, with a good profit record and a sensible landbank, have seen their shares slashed as investors absorb the realities of the credit crunch. Even market favourite Bellway has seen its stocks decline by 58% over the past year, and the news that house prices have fallen for the fourth consecutive month will further depress the market. Alistair Leitch, Bellway’s finance director, got the situation spot on when he said: “Demand is still there. We have lots of potential customers but either they can’t find a mortgage or the offer is pulled before they can complete the sale.”
This is a crisis of confidence in the financial system. It is not a shortage of housing demand. People will continue to stretch themselves to pay their mortgages – if they can get one. Liquidity is the problem and there is, as yet, no sign of improvement. That’s why I have devoted so much time to bankers and lenders. The property industry is hugely dependent on their getting it right and it is clear that European banks got it wrong even more big time than their US counterparts. The Institute for International Finance has shown that US banks unloaded a disproportionate amount of their sub-prime securities on under-suspecting European bankers. That’s why what was fundamentally a US drama has been played out more painfully over here. Of the $387bn losses, US banks suffered $166bn and European $200bn.
Bankers’ muddle
No doubt the influence and standards employed by the American-owned Moody’s and Standard & Poor’s rating agencies will come under even greater scrutiny as a result of these figures. However, more worrying for the future is the fact that, to repair the damage, European banks have been able to increase their capital only by some $125.5bn as compared with the US banks’ $141bn. The U-turns at Bradford & Bingley and the problems at RBS and Credit Agricole serve only to underline the difficulties that surround European refinancing attempts. RBS may have pulled off the biggest refinancing in history but that has left HBOS seriously exposed.
All this is against a background of growing inflation, the warning of higher UK and EU interest rates, and the damage being done by currency movements. Mike Slade, Helical Bar’s CEO, seems about right in his view that there’s a good deal worse to come.
Planning postscript
I was too kind to the government last week. I took it at its word when it pulled the Planning Quango debate and announced Monday of this week as the new date. The idea that there should be no direct local influence on the local issues raised by infrastructure projects was causing consternation among Labour activists. As the week went on, confusion still reigned. Labour rebels were sticking to their guns and the Whips reported that the proposals would not get through.
By Thursday, ministers had given up and there was no sign of the Planning Bill. Instead, we were told we would debate the Climate Change Bill, which has all-party support. Indeed, it was forced on the government by a Conservative/Friends of the Earth alliance. This time, the government is taking no chances. Latest news is no resumption of the planning debate until 26 June – an unprecedented gap.
Where, then, does that leave the development industry? There is no timetable for the controversial clauses, so we are in limbo. Yet the need for change is urgent. Parliament must decide the principle, the need and the safety of these great projects or we shall just not be able to renew our rail, water and infrastructure. All the government needs to do is to provide for local inquiries, limited to local matters and lasting not more than 30 days. That would deliver its majority and speed up the system because it would minimise opposition if local people felt that their worries about traffic, noise and environmental intrusion could be aired in front of an independent judge whose recommendations would usually be accepted by the minister.
The BPF should be on to local government minister John Healey now and, if he persists, Liz Peace should see that it’s raised with the prime minister. This is an issue that can’t wait.
John Gummer is Conservative MP for Suffolk Coastal and a former Secretary of State for the Environment
