Iain Wardrop, Associate in Ryden's Consulting Group, examines the UK and Scottish trends in the residential market and draws some conclusions for the Clyde Waterfront area.
The current dismal performance of the UK housing market reverses
15 years of market expansion to 2007. This expansion was
fuelled by rising household numbers, underpinned by economic growth
and the availability of mortgage credit.
The housing market in 2009 is affected by a slowing economy and
therefore prospects for earnings and employment. More
importantly, the market is heavily constrained by restricted credit
availability for both developers and prospective house
buyers. Both of these negative market influences are
attributable to the ongoing recession.
Until the banking sector stabilises, the prospect of less
restrictive mortgage lending is very limited. The consensus
view is that this re-structuring will continue through 2009, with
the possibility of a more stable market in 2010. To date we
estimate that residential land values are down between 30%-50% from
the market peak in 2007.
When the mortgage market does fully re-emerge, it is expected to
be on the basis of higher deposits, lower lending multiples and
stricter credit criteria. Such conditions would support
housing market activity, but would not support the high and
constantly rising prices which characterised the UK housing market
during the early to mid-2000s.
Scottish House Prices
In house price terms the Scottish market is holding up better
than the UK's. Mortgage affordability was less stretched in
Scotland. Scotland's house price to earnings ratio for first
time buyers ratio was 3.7 in 2008 compared with the UK's multiple
of 4.7 . These multiples have decreased as lenders apply
stricter mortgage criteria and house prices fall. Moving away
from the "100% mortgage" phenomenon of the credit boom, the average
first time buyer in Scotland now provides a 13% deposit and the
average home mover 27% .
Despite this, Scotland's housing market resilience is clearly
being tested by the decreasing availability and stricter terms of
credit available to buyers, which has contributed to a -20% decline
in overall property sales.
One market sector of relevance to the Clyde Waterfront
regeneration area which has been particularly affected by the
recession is the buy-to-let sector. This sector was
particularly dependent upon mortgage finance at high loan-to-value
ratios, and had a symbiotic relationship with new-build high
density flats (and off-plan purchases). Falling capital
values are creating the prospect of negative equity for such
Ironically, potential first-time buyers unable to secure
mortgage credit are increasing demand for rented housing. The
private rented sector is likely to re-balance towards proven
locations with good tenant demand and the prospect for strong
Forecasts of UK house prices anticipate a much weaker
market. A review of recent forecasts identifies an
average expectation of a peak-to-trough decline of -25% in UK house
prices between 2007 and 2010. Market evidence suggests less
of a decline in Scottish house prices.
These market conditions have created opportunities for housing
associations to secure land and progress development on sites where
they had previously been priced out of the market. This has
resulted in an increase in housing association activity in contrast
to a reduction in the level of private sector construction.
Trends in Clyde Waterfront Key Character Areas
The following comments are based on analysis of the trends in
residential property in each of the Clyde Waterfront Key Character
areas. A fuller version of the research can be found in the Clyde
Waterfront Residential Development Market Review.
Glasgow City Centre
Although the residential downturn affects the city centre
market, it is unlikely to result in schemes being revised to
accommodate different house types, i.e. from flats to houses.
The most likely scenarios are that schemes are either reduced in
density/ numbers, postponed or a different commercial use is
introduced, e.g. offices or hotels.
Pacific Quay and SECC
The situation here is similar to the City Centre in that the
current state of the market is unlikely to result in schemes being
revised to accommodate different house types.
Infrastructure work is still being progressed at the SECC
including the construction of a new road layout and utilities
Greater Govan and Glasgow Harbour
Housing associations are currently very active in this area with
a number of developments on-site and in the pipeline. Private
sector development has slowed due to conditions.
Private house builders are finding that demand for flats has
significantly reduced primarily due to restricted availability of
Renfrew Riverside and Scotstoun
New house transaction rates have increased over the last three
years. This is most likely due to the significant development
that has taken place at Ferry Village, Renfrew.
Signs of continuing difficulties in the market include one site
where the first phase of a retirement home scheme, which has been a
reasonably buoyant sector, has been completed, but subsequent
planned phases (with detailed planning consent) have not started on
site. In another location, a private house builder has
disposed of a site to a local housing association for significantly
less than the price paid for it.
Clydebank and Erkine
This part of the Clyde Waterfront area is dominated by
Clydebank. The single largest scheme in the town is Queens
Quay which has stalled due to the developer going into
administration. It is illustrative of the wider market that
the only residential activity on site at Queens Quay is a
development by Clydebank Housing Association.
Old Kilpatrick to Dumbarton
Recent market activity has included the developer of a centrally
located waterfront site in Dumbarton submitting a revised, lower
density residential scheme for planning approval than previously
Clyde Waterfront residential activity reflects general housing
trends in Scotland and the UK as a whole. While Scotland is
performing better than the UK, the Clyde Waterfront area is
experiencing a slow down in residential activity due to the type of
development underway/ planned.
It is imperative that the public and private sectors recognise
that the short to medium term negative influences on the
residential market do not change the Clyde Waterfront area's
underlying attributes including location, connectivity and
accessibility. The Clyde Waterfront Partnership plays a vital
role in continuing to promote quality of development and creation
16th September 2009