Slump in housebuilding since start of year

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The Independent Online

Government plans for meeting the national housing shortage with the construction of 240,000 homes each year until 2016 were dealt another blow yesterday by figures showing a construction slump in the first three months of the year.

The Department of Communities and Local Government said construction began on just 32,144 new homes in the first quarter of 2008, 21.5 per cent fewer than in the final three months of 2007 and almost 25 per cent down on the same period a year ago.

The collapse reflects mounting concern among housebuilders about homebuyers' inability to borrow money to buy homes as mortgage lenders have cut back on advances after the credit crunch.

A succession of builders have warned of a sharp downturn in sales this year, with Barratt Developments saying on Wednesday that there had been a particularly serious downturn since Easter.

"Activity and prices are buckling under the toxic combination of elevated affordability pressures and very tight lending conditions," said Howard Archer, chief UK and European economist at Global Insight. "The situation is likely to deteriorate further as the housebuilding index in the April purchasing managers survey for the construction industry indicated that housebuilding activity contracted for a fifth successive month and at the sharpest rate in the survey's history."

However, Caroline Flint, the Government's housing minister, described the collapse of housing starts as a "short-term trend" and called on builders to "base their decisions on the economic fundamentals and longer-term trends".

Ms Flint added: "It's important to remember this is a long-term target, and the fundamentals for a healthy housing market over the long term are in place – with high employment, historically low interest rates, and long-term demand for new homes from first-time buyers. Our long-term target for 240,000 homes a year by 2016 is challenging but remains achievable."