Jeremy Warner's Outlook: It might be five years before the housing market recovers. Housebuilders pay price

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The Independent Online

Banks, I wrote earlier this week, are the new dotcoms, in the sense that the meltdown in their share prices has already qualified some of them for the "90 per cent club", the term invented at the time of the technology bust to describe companies that had lost 90 per cent of their value.

Yet there is another sector vying for membership, too – housebuilders. In the past year, the industry has suffered a truly calamitous loss of shareholder value as the mortgage famine and related housing downturn take hold. Now there's talk of profits wipe-out, slashed dividends and rescue rights issues.

Once one of Britain's boom sectors, there was until quite recently loads of these companies in the FTSE 100. Today there is just one, Persimmon, and this company too will be ejected in the next reshuffle. So dire has the market for new housing become that a number of them have ceased all new development. Once already started projects are complete, thousands will lose their jobs.

To understand the nature of the problem, take the following example. A new apartment block is built on the assumption that each unit can be sold at an average £300,000. Pre-credit crunch, mortgage providers would freely lend on the basis of a 10 per cent deposit or less. Today, they demand at least 25 per cent and, on buy-to-let purchases, possibly even more. Where once buyers would have to find only a £30,000 deposit, now they must put up £75,000. It is scarcely surprising that the market has collapsed.

After the last housing crash of the early 1990s, the market took five years to recover. Some companies will be forced to write down land banks, or sell them off. Meanwhile, the Government's target of 200,000 new houses a year can safely be dismissed as just pie in the sky.

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