Philip Barnes – Blog


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NORTH EAST ECONOMIC REVIEW APPROACHES COMPLETION

February and March 2013 may go down as two of the most important months in the economic history of the North East.

Having witnessed Lord Adonis and his team present the initial findings of the Independent North East Economic Review last Friday at The Baltic I’ve got to say the pace of work has been phenomenal – over 1,000 pages of submissions from over 50 organisations all read and analysed within four weeks.Last Friday (February 15) was the opportunity for stakeholders or partners (or whatever the term is now) to hear the key messages and give feedback. There was a strange atmosphere in the room – even though the audience was nearly all from the public sector and the expert speakers were all from out of the region – it really felt as if we were all working together with one objective – to create more and better jobs.

The Review will be published around Easter but judging from the presentations what can we expect?

Firstly we will have a clear set of recommendations on education and skills. It seems clear we have lessons to learn from Scotland and other areas. In particular we need to simplify the system and get more businesses into schools to inspire the next generation about the opportunities here.

Secondly, expect a recognition of our strengths in manufacturing alongside recommendations to help NE businesses gain easier access to complex global supply chains. In this regard it was amazing to hear that we will soon be producing half of all cars made in the UK and we currently have a third of UK pharmaceutical manufacturing here – a huge platform for success.

The transport outcomes will be interesting. The external speakers clearly felt our infrastructure is not a major brake on growth. Indeed some cautioned against new linkages which may actually make it easier for stronger regions to take productive activity out of the region. Nevertheless all recognised that the right improvements will help drive economic success.

A clever professor from the University of Groningen explained how complex supply chains actually work and how NE businesses can and should compete. He also made clear that the City Region is the most successful spatial economic area but beneath and above that are complex patterns of relationships and linkages.

As expected leadership, governance and branding were discussed at length and will likely be centre stage in the Review. Aside from a couple of parochial comments at the event my sense is that the Review is helping to galvanise a common purpose which recognises the need for tough decisions on priorities, which includes pruning back activities that aren’t working.

Planning was also debated, picking up on the themes from an earlier Land and Property workshop in Durham. The expert paper by Professor Overman of the London School of Economics was pretty hard hitting. Namely that in an economically weak region with no shortage of space the planning system must produce more market facing outcomes.

This requires closer working between councils and businesses to bring forward greenfield land which will be developed quickly to create jobs, homes and infrastructure. Prof Overman was clear in separating the great work of the planners in the region from a planning system and policy framework which is currently not set up to support the market in the way it should. Everyone at the workshop agreed that the quick production of growth-focussed local plans and a more positive approach to planning applications was needed.

The last discussion was about monitoring and measuring. When the Review is done there needs to be a clear process for implementing its recommendations and then closely monitoring how it succeeds against its targets. The last thing we need is to start another Review in 10 years’ time addressing the same issues we have now. Only time will tell but one thing is certain – the better we work together the better our prospects are.


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ECONOMIC PROSPECTS FOR 2013/14

Here are the 10 key summary points (as I saw them) from Rhys Herbert’s superb Economic Update presentation to the RICS conference in Newcastle yesterday. 

 Rhys is the Chief Economist for Lloyds TSB Commercial. 

 Overall grounds for cautious optimism – especially in relation to construction. Let’s face it – it couldn’t get any worse for our sector!!

1.  Global economic conditions are improving – driven by US and China improvements. Plus Euro area looks like slightly better than it has been – stabilising or reduced decline is predicted.

2.  This recession is  longest ever. 2nd deepest behind Great Depression. LLoyds predicting 7 years to get back to 2008 levels. (2015/16)

3.  Lloyds don’t see  the base  interest rate rising significantly for a couple of years. Predict base rate at 0.5% for next 2 years.

 4.  Government’s recent scheme to lend to banks (at base rate on condition they will lend to business at low rates) is showing signs of success. This scheme came in last year and good signs  it is easing money supply to business. Last quarter lending figures highest since recession started. Still way lower than pre 2008 levels though.

5.  GDP flat last year. Lloyds forecast 1.3% growth for 2013 and 2% for 2014.

6.  Sector performance through  in recession – Services broadly fine, manufacturing slightly down, construction hit by far the hardest.

7.  Key GDP problem has been fall in consumer spending. Double hit on this. First people want to pay down debt PLUS fall in net income due to wage inflation not matching price inflation.  Consumer spending should increase in 2013/14 as debt burdens reduce.

8. Corporate sector is sitting on unprecedented amounts of cash – overall 5% of surplus. LLoyds expect some of this cash pile to be released into business investment in late 2013/2014

9. Big threat to growth is cuts to public spending. Hit NE harder as more businesses who rely on selling to public sector. However Lloyds believe the effect on public sector spending cuts on the overall economy is being overplayed by politicians. It’s an important but not as important as key structural factors such as consumer spending, business investment, Euro economy and global growth.

10. Construction – in a nutshell:

a) Private sector construction activity fell sharply but now stable

b) infrastructure – rose in early recession then fell badly now rising again.

c) Public sector construction fell slowly and now falling fast.

d) Overall construction activity forecast to rise due to infrastructure and modest private sector growth. Still tough times ahead.

 


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RICS NE CONFERENCE – HOUSING SUMMED UP IN 20 POINTS

Yesterday I presented a paper on Viability in Planning to the RICS North East CPD day. A number of the sessions touched on housing and below is my short and slightly random 20 Point sum up.

Please note they are the views of various others who also spoke at the event.

  1. Without a “shadow of doubt” housing delivery is top of political agenda.
  2. Systemic regional variations in the market – north / south divide. Regional variations are projected to increase in next 10 years.
  3. Home ownership is out of reach for FTBs and PM determined to address.
  4. Raft of recent Government market interventions but none have had a structural impact on either mortgage availability or housing delivery.
  5. Net lending has “drastically” reduced since 2007. No current prospect of structural upward change. Although some recent green shoots – new products at 4%rate/90% deposit. Outcome from recent Government lending initiatives.
  6. Price falls everywhere except prime central London. Current prices at 2003 levels.
  7. Transactions halved since 07 and currently 35% below 50 year average.
  8. Barratt Fulham scheme – 60 sold in a week. Battersea scheme 80 sold in 2 weeks. London is a bubble market – divorced from UK normal market.
  9. Rental growth outside London is very slow. But solid investment for landlords due to strength of demand.
  10. Renting is now more accepted amongst younger households especially as home ownership levels are falling like a stone.
  11. Private rented sector is a key Government focus. Volume builders are entering the sector strongly. Why? – because people are staying in renting accommodation longer. Average tenure lengths increasing. Also quality is better although recognising huge qualitative variations. PRS is heavily focused in SE. Now a bigger sector than social sector in UK.
  12. Big questions about whether rental control will be introduced. Many feel it will kill the PRS sector if introduced.
  13. Problem is that PRS is growing by taking units from other sectors rather than building new. Should ease as new players (e.g. Grainger) focus on building new product.
  14. Huge homelessness problem which can only be addressed by more supply. Massive social issue for UK
  15. Chronic under supply has caused the housing crisis – not economic or market factors.
  16. Housebuilders will not/can not build without an exit or viable funding. At present 13, 14, 15% senior debt is killing viability other than where land is purchased cheaply – rare.
  17. Social Sector is desperate to get into PRS. e.g. Places for People (?) have just bought portfolio of 000s of houses in West Midlands. Currently German and Swedish investors have targeted major investments in UK housing. Agents have been brief to buy 000s of houses usually within M25.
  18. Supply issue – completions recently increased but starts have recently decreased dampening optimism for 2013.
  19. Average housing planning application takes 38 weeks – x3 the Government target. Redrow spend more on planning than bricks.
  20. Simple reason why UK institutions not entering the PRS market – yields not good enough and fear of management. Big progress on both elements though. Ongoing Government support essential.
  21. Huge problems (and opportunities) for social sector. PWC forecast 1.0 million shortfall info social units in 10 years. With lack of grant and S106 fall off they need to do things differently – particularly in securing finance, buying land and risk management.
  22. Huge investment opportunities in the North going forward due to shrinking yields in South. Both for BTL and new development.
  23. There is now an All Property Index which compares residential sector to other commercial sectors. It very clearly shows returns from residential sector have outstripped all other sectors whether looking short term or long term. This is a good time to invest in the delivery of either PRS, owner occupied or social housing – if capital can be secured.

 

As always comments welcome.