Comment: A housing recovery, but not as we know it

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The Independent Online
The slump in housing starts in the three months to February compared with a year ago will have come as a jolt to ministers and home-owners alike. Everyone thought we had finally begun to see the beginnings of a new dawn in the property market.

But before you draw the blinds, make one last calculation of your negative equity and wander into the library with a glass of whisky and a loaded revolver, take heart. The decline in starts can be explained in large measure by the particularly bad weather this winter and there is every expectation that the housebuilding industry will begin to pick up in the next two months.

Who, in any case, would bet on one set of statistics against the instincts of a wily old bird like Sir Laurie Barratt who has decided to double the number of homes he is building between now and the end of the century. The basis for this optimism is reasonably founded. House prices have risen for eight straight months and should manage a 2% increase for 1996, mortgage rates are at their lowest for 30 years and albeit modest tax cuts are helping top up the feel better factor.

Job insecurity and the savaging house prices have taken for the last six years are undoubtedly drag factors. But although the negative equity trap is wide, it is also shallow, meaning that it would only take a modest recovery in prices to lift the heads of many homeowners above water.

Activity in the housing market is undoubtedly on the increase with the Royal Institute of Chartered Surveyors reporting a 10% rise in viewings and valuations this year. What this has not yet fed through to is a commensurate jump in actual transactions. Nor is it necessarily likely to. If we are seeing a housing recovery at last, it is one which differs fundamentally from those of the past.

During the boom of the 1980s housing was a one way bet and buyers snapped up properties indiscriminately in the certain knowledge that the value of their investment would rise. In the cautious 1990s, the recovery in the market is more fragmented, so much so that house values and saleability can vary wildly from street to street.

That is because sanity has returned and a home is now seen as somewhere to live not something to make a living out of. There is a great prize at stake here if homeowners can be lifted out of their collective sulk by a recovery in the housing market that is sustainable and non-inflationary and achieved, moreover, without any direct support measures. The Chancellor must be preying it arrives in time for him to take the bow.

Tesco looks like extending its lead

On first reading, Tesco's "help you out" campaign to raise the standards of service in its stores to new peaks of perfection shows Britain's leading supermarket group again taking the high ground in the battle for the high street. The 4,500 jobs it has created will do its image as an employer no harm while the army of baggers and carriers it has recruited to pamper the customer may step up the pressure on competitors.

These are hardly high quality jobs. Hourly rates of pounds 3.85 to pounds 4.16 are some way better than those offered by the "McJobs" which are the much- criticised norm in the fast-food trade. None the less, these are low tech, part time positions. Britain's deregulated labour market has yet to prove it can create much else by way of employment. Still, a job is a job, and plenty of people will be glad to have them.

Meanwhile, the company's attempts to paint its new initiative as a huge advance in customer service loses some credibility when set against the competition. Indeed, in terms of what it is spending and how many are being pressed to the task, Tesco may be merely catching up with its rivals. Given that the other three groups are already offering similar services, customer assistants at Tesco are going to have to work especially hard to differentiate their service from the rest.

It also remains unclear whether the supermarkets' new emphasis on service can ever have the same impact on sales that the earlier, highly effective price-cutting campaigns had. British consumers undoubtedly like good value, they may be more wary about the importation to the UK of American-style bonhomie. Still, Tesco is plainly working overtime to maintain the ever widening gap it has opened up with its main rival, J Sainsbury. Moreover, Tesco remains well ahead of the game on IT and efficiency. These gains are of themselves probably capable of absorbing the annual pounds 100m cost of the company's customer care strategy, of which yesterday's initiative will cost pounds 20m. If the extra sales do materialise, it will all be icing on the cake. If Sainsbury doesn't pull something remarkable out of the hat soon, which in turn will probably require management change of a much more dramatic nature than has been seen to date, then Tesco looks to extend its lead well into the next century.

Rentokil may be able to bluff it out

To tweak or not to tweak - that is the question facing Clive Thompson, chief executive of Rentokil this weekend as his bid for BET enters the final furlong. Raising the bid by just a little - say 10p to 15p a share - would almost certainly secure success. But he might just get away with it even if he does nothing. BET's big four shareholders, M & G, Prudential, Threadneadle and Fidelity, are urging BET's John Clark to seek an agreed deal, in the hope of securing better terms. But with the arbs now sitting on well over 20 per cent of the stock, Rentokil will be sorely tempted to bluff it out.

On record and strategy alone, Mr Thompson plainly deserves to win hands down. Boring may well be the word that best describes this takeover tussle, but it is clearly not a condition Mr Thompson suffers from. For fourteen years, way beyond the boredom threshold of most chief executives, Mr Thompson has trudged into Rentokil and every day he seems to find a new challenge in this distinctly unglamourous mix of pest control, tropical plants, office cleaning and motorbike courier group of businesses. Since he arrived, pounds 3.4bn has been added to Rentokil's stock market value and earnings have soared, year in, year out.

Mr Clark, by contrast, has been at BET just four years, insufficient to establish the sort of high performance culture of success enjoyed by Rentokil but long enough to do more than he has done in establishing a viable strategy for BET's equally dull collection of service businesses. Mr Clark did a great job rescueing BET from the financial abyss into which it was sinking. But as his share price atests, he hasn't done much else. Ignore this bid and the share price wouldn't be very different from the level it was at when Mr Clark arrived in 1992.

Just a little more time, Mr Clark protests, the refrain of all executives caught in slumber by a hostile takeover bid. If time isn't on his side, money certainly seems to be. When Mr Clark flies back to the US, his company lost to Rentokil, it will be with a cool pounds 5m in his back pocket, courtesy of a three year rolling contract and various performance related bonuses.