KUALA LUMPUR:  The current credit crunch could result in significant changes to the way new homes will be financed, built and planned in the country, according to a report by Knight Frank LLP, London on The Future of Residential Development in Britain.

The March 2009 report said Britain's residential development industry has entered a period of "drastic change", one of which the public sector will take a more proactive role in development, at least for the next year or so.

Many volume builders who are in financial difficulties amidst the current economy downturn have put large amounts of their land banks in the market and the majority of buyers consists of government agencies and housing associations which are almost as active as private investors.

Jon Neale, head of development research at Knight Frank said on March 24 that it is highly likely that a number of larger sites could come into public ownership over the next few years, particularly as land values are so low.

The increasing role of the public sector, particularly in the land market as a result of such major ‘land transfers’, he said, could change the whole nature of the industry and the way business is done in Britain.

According to the report, this offers an opportunity for both public and private sectors to build a new consensus that caters for housing needs, for example, in providing the required level of quality and quantity of homes in the country.

“It is wrong to be too pessimistic about the current situation. Indeed, it offers a new opportunity to reshape the industry and the policies to better cater for Britain’s housing needs.

“There is an opportunity for government agencies to provide them with infrastructure, preparing sites for development when the market returns to strength. In this regard, it is likely that the public sector will exert greater control over the build-out by retaining a stake in the scheme,” said Neale.

Consequently, Neale added that it is also highly possible that traditional volume housebuilders could play a smaller role in delivery of homes in the future.

“Land values have fallen by as much as 70% in some areas, although 30 to 50% falls are more common, and it seems unlikely that these figures will bounce back to their peak levels in the short term as many new investors may choose to hold onto their purchases, in waiting for better returns. This in turn, could block development and further reduce the housing supply."

There is also a current spike of interest in renting due to a change in attitude towards housing investment following the recent collapse in house prices. This could  mean that investors or even developers may hold newly built stock to let out, particularly as yields are likely to remain high in the medium term, he said.

This report is a 55-page investigation compiled following interviews with over 50 key figures in development, planning, economics and academia to provide a comprehensive picture of how the credit crunch and the recession are changing the residential development sector in Britain.

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