John Callcutt

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• John Callcutt

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The credit crunch and its aftermath

• Where are we at the moment
• How did we get here
• Where is it going
• What will be the impact the need for
  objectivity
• on the industry
• urban regeneration
• government policy objectives, environment,
  quality etc
• The aftermath
• Can we mitigate its impact

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End of the nice times
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UK house prices forecasts get bleaker with
prediction of 35pc drop   By Emma ThelwellLast
Updated 1153PM BST 19 Jun 2008
                               
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Slow rebuild on affordability
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Sequence of events - 1

• High house price inflation in UK
• Housing bubble fuelled by easy credit and
  speculation
• Affordability maintained by low interest rates
• Property downturn in US, rental income unable to
  service loans
• CDOs collapse in value - 400bn lost in value
  write downs
• Wholesale money markets collapse little or no
  interbank lending
• UK house buyers over geared
• Finance sector pulls the plug on non prime
  lending, and re-prices

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Level of borrowing unexplained by base rates
Pre-cut
Current
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Sequence of events - 2

• Inflation and increased finance costs reduces
  household income
• Over geared borrowers unable to service loans
• Weaker borrower covenants begin to default,
  banks bad debts increase
• FTB and investor markets weakness ripples through
  the market
• Banks seek to recapitalise and rebuild liquidity
  some fail eg HBOS,
• Rate of house price deflation gathers pace
• House builders share values collapse

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COLLAPSE OF THE SECTOR

• From 22bn to 3bn in 12 months

Share price pence
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Sequence of events -3

• House builders slash overheads and prices, stop
  land buying go for cash
• Land values written down by billions of pounds
• Forced refinancing ie debt equity swaps,
  rescheduling, dismemberment
• Major house builder and supply chain failures
• Land values written down by billions of pounds
• Widespread defaults on major public / private
  projects

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Importance of the Private Sector
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Sequence of events - 4

• Long term house building capacity significantly
  reduced
• UK hardest hit of the G20 economies
• Emergency Govt action to mitigate the recession
• Finance sector begins to lend on new criteria
• Market finds bottom (2009/10) new equilibrium
  established

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A new equilibrium
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What does this mean for housing supply

• Policy objectives will commercially impossible to
  finance
• volumes
• the environment
• quality
• affordability
• infra structure
• brown field development
• Govt will not have the resources to gap fund on
  the scale needed
• Policy objectives will have to be revised
• mitigation of planning gain on new applications
• re-planning on non viable projects
• discounting of PPS3 supply on grounds of non
  deliverability
• renegotiation of existing public / private
  contracts
• prioritisation of policy objectives

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What can be done Callcutt Review

• Make hard choices and prioritise
• revise volume ambitions
• decide on the core policy objectives
• flexible approach to planning gain
• temporarily increase green field allocations
• relax requirements on infra-structure
• Build underlying capacity to facilitate future
  production recovery
• Create long term asset growth rather than rely on
  inflation
• mature partnerships (Review )
• address root causes of low urban demand(Review )
• flexible planning gain / renegotiation with claw
  back (Review)
• encourage new entrants and SME growth (Review)
• long term community management
  structures(Review)

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Creating long term urban asset growth
Quality of Life
Out of town values
100
Quality of Management

Inner city values
Percent growth
Quality of development
50
Quality of Life
0
10
5
Years
20
C
Investor business model would help bridge the
affordability gap ( converting secondary
locations to prime)
100
Edge of town values
Retail model
Traditional retail model
Percent
50
Investor model
Investor model
Inner city recovery values
0
10
5
Years
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