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Feature: Government’s housebuilding plans are on shaky ground

Experts list potential obstacles to Chancellor Philip Hammond’s pledge to build 300,000 new homes a year

New-build

The Government is promising to ramp up the pace of new housebuilding but there are fears its plans face significant hurdles.

Chancellor Philip Hammond announced in November’s Budget that he would create new policies and commit the necessary funding so the UK builds 300,000 new homes a year by the middle of the 2020s. The current run rate is less than 200,000, and has only just got anywhere near that level.

If the Government hits its target, it would exceed the 250,000 homes-a-year goal many commentators believe is necessary to satisfy demand to provide enough afford­able homes and stem the raging tide of house price growth which has made homebuying a dream for many would-be first-time buyers. While that price acceleration calmed in 2017, at about £211,000 for an average home, the cost of the average UK home is about eight times the average salary.

Much more needs to be done, in particular with regard to the planning system, if the target is to be met

Many experts are encouraged by Westminster’s intentions. Jane Forbes, housing lead partner at accountancy firm PwC, says: “The commitments of £44bn in capital funding and loans and to build 300,000 homes each year are extremely welcome and show the Government recognises that housing and rising homelessness are the most important non-Brexit issues facing the UK.”

Another positive development noted by some is the level of innovation in the private sector, which is seeing the rebirth of modular building that some think could speed up development. However, many have pointed to potential blockers to building growth such as the uncertain economic climate, the lack of smaller builders and tough planning and lending restrictions.

Liam Brooke, co-founder of peer-to-peer property funder Lendy, says: “Talking about setting a 300,000 new homes target is all well and good but we’ve been here before. We need actions, not just words, to ensure targets are not just wishful aims but realistic and achievable objectives.

Housebuilding targets have been missed for years, exacerbating the housing crisis. People may rightly be asking what is going to be different this time.”

Brooke is not alone in lamenting previous failed promises. The Government is already behind on its target set in 2015 to build one million new homes by 2020, given the required rate is 200,000 per year, and that milestone has not been reached since 2007/08.

The only way to deliver 300,000 homes a year is to get local authorities and housing associations building as well as the private housebuilders

Among the many Budget promises, Hammond insisted there would be new money for the Home Building Fund to get more SME developers constructing, to more than double the Housing Infrastructure Fund and to unlock strategic sites.

He also said there would be incentives for councils in high-demand areas to get them building and gave financial guarantees to support private housebuilding and the purpose-built private rented sector.

There was also a pledge to develop construction skills across the country, and perhaps in a bid to win over younger voters, he said “we will ensure councils in high demand areas permit more homes for local first-time buyers and affordable renters”.

The promises came at the same time that Hammond abolished stamp duty for FTBs on the first £300,000 of homes that cost up to £500,000. That move was designed to help struggling FTBs onto the housing ladder – though some critics say it could yet push up house prices – so could help the building sector by creating more demand.

Stewart Baseley, executive chairman of the Home Builders Federation, says: “There is no silver bullet that will deliver a step change in supply but the Government needs to continue to develop policies that will build on the big increases of recent years. The measures will stimulate demand and help broaden the supply base. But much more needs to be done, in particular with regard to the planning system, if the target is to be met.”

While the HBF acknowledges that Hammond is committed to encouraging more SME builders, it insists his plans need to be implemented effectively and quickly.

It is strong in its belief that policies to enable more types of companies – not just the big boys – to build new homes are badly needed. It wants more SME builders, retirement providers and a greater contribution from the social sector.

The HBF also wants to speed up the pace of delivery. It says there is a great need to reduce bureaucracy in how land is brought forward for development. It adds that the planning system also needs reform as it can take years to navigate and create big costs for developers.

Other housing market experts echo many of those calls. Mark Robinson, chief executive of public sector housing specialist Scape Group, says: “Once again the Chancellor has set out ambitious plans for further reform of the planning system. However, to achieve this it needs to be properly resourced and will only succeed if the authorities facing the greatest pressure receive more funding for their planning departments.”

On getting more organisations to build, he added: “The only way to deliver 300,000 homes a year is to get local authorities and housing associations building as well as the private housebuilders.

“By lifting the Housing Revenue Account cap [which limits how much councils can borrow] in high-demand areas, the Government has finally begun to give councils better access to finance so that they can borrow to build affordable homes. We need a revolution in council housebuilding, and finance is the main stumbling block.”

On a similar theme, but focusing on the need for smaller private building firms to add to the housing stock, Brooke says: “Improving access to finance is critical for SMEs. This impacts everything from training the next generation of skilled labour to simply being able to buy enough materials to get off the ground. Without sufficient cashflow to pay for bricks and bricklayers, nothing is going to change.”

Nathan Ellis-Calcott, director of development finance broker Thistle Finance, agrees, and cites improved availability of finance as one of the reasons for the recent growth in housebuilding.

“There has been an influx of new lenders and challenger banks into the development sector over the past two to three years. This has brought rates down and offered greater choice to developers, both large and small,” he says.

“While some banks will only lend to established developers, a growing number of lenders are accommodating first-time developers, or those with less of a track record. Rates will be higher but the finance is at least available.”

Another possible hurdle for growth is the end of the Help to Buy equity loan scheme, which is due to cease in 2021.

A report in November by the Intermediary Mortgage Lenders Association stated: “Britain’s new-build market needs to confront its dependency on the Help to Buy equity loan scheme.”

If its end means fewer people can afford to buy a home, there is less chance a builder will want to begin construction of it.

Imla executive director Peter Williams says: “Almost one in four new-build completions, and one in five additional homes overall, are being supported by the Help to Buy equity loan scheme. There needs to be clarity on what happens next long before its scheduled closure.”

Another concern from many commentators is the effect Brexit will have on the pool of skilled construction labour, given the UK property market relies heavily on EU migrants.

“Brexit threatens to reduce the pool of skilled labourers available to build these properties,” warns Craig Hall, new-build and development manager at L&G Mortgage Club.

Brooke adds: “Already, acute skills shortages are only going to get worse. Ideas such as a special visa regime for the construction sector, guaranteed for a decade, should be given careful consideration.”

Brexit is, of course, one reason many doubt the resilience of the UK economy, which has led Williams to warn “there are fundamental unanswered questions about how the Government and industry can best sustain the recent new-build activity recovery against an uncertain economic background”.

Housing charity Shelter – a long-time proponent of the need for affordable housing – insists at least half of the 300,000 promised homes must be within the reach of people on lower incomes.

There needs to be clarity on what happens next long before Help to Buy’s scheduled closure

Shelter chief executive Polly Neate urges: “If the Government is serious about tackling our housing crisis and helping the millions of families on lower incomes, then sticking plasters will not be enough – it must prioritise building homes which are genuinely affordable for ordinary people to rent or buy.”

Shelter has been particularly vocal for many years that the UK needs 250,000 new homes a year to satisfy demand. We are nowhere near that mark.

The most recent official stats show that in the 2016/17 financial year the construction of 196,790 homes began – continuing the gradual increase since 2008/09. This is up from 175,180 the year before and 172,450 the year before that.

The Government also revealed that in England in the previous financial year, housing supply shot up by 15 per cent with 217,350 new homes. However, this cannot be directly compared with the UK-wide stats above as it includes change of use and conversions as well as new constructions.

One way builders hope to speed up production is via modular homes, where sections are constructed in factories, and then transported to a building site where they are pieced together to form a home.

This type of innovation has seen L&G launch plans to start the construction of 3,000 such homes, while Berkeley Homes is planning to create a facility this year to produce up to 1,000 homes annually, and nHouse is setting up a factory to build 400 a year.

L&G says modular building is quicker and more efficient than traditional construction, allowing homes to be built in “weeks rather than years”.

Many suggest that, because they are built in an indoor, climate-controlled environment, modular construction homes are not subject to delays or weathering of materials. However, homeowners are not able to customise their homes like a standard house or flat and the properties may not hold as high a re-sale value due to the stigma attached to them.

Hall adds that innovation is required for the 300,000 target to be met, insisting the Government must “con­sider support for new ways of building”.

Modular homes could be one driver but it is clear that, for the Government to meet its housebuilding objective and for Hammond’s words not to become yet another failed housebuilding promise, significant industry change – and a healthy economy amid the Brexit turmoil – needs to be the order of the day.

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