It was great to hear housing minister Alok Sharma stressing the need for greater diversity in housing delivery at the recent Housing Market Intelligence event as I think the housing sector is overdue for a major shake-up.
The fact that we are still failing to build the number of new houses needed is not helped by a single model for delivery that introduces risk and discourages investment.
Help to Buy was a great initiative – it single-handedly revived a stagnant housebuilding sector at a point where we had reached crisis point. As a single measure, however, it exposes the housebuilding industry to huge volatility.
By effectively subsiding mortgages, the scheme allows prices to escalate even further beyond the reach of most prospective buyers while doing nothing to help the 77,000 families currently being housed in emergency accommodation.
It also means that the entire housebuilding industry – and naturally I include the manufacturing supply chain – is dependent upon consumer confidence and the generosity of lenders. A hiccup in either of these and the major housebuilders can stop building very fast.
Awareness of this risk on the horizon does nothing to encourage manufacturers to invest in increased production volume and nothing to encourage builders to invest in recruiting and training full time staff, eroding the skill level within the industry still further.
So it was a relief to hear Theresa May announce a £2 billion injection of cash towards council building. Arguably £2 billion is a small amount – and particularly when compared to the £10 billion pledged to Help to Buy – but it does signal a change of direction and a more encouraging view towards genuine public sector housing.
I would argue that we will never meet the demand for new houses while delivery is exclusively the province of the private sector. It is hardly in the interests of a privately owned organisation to meet demand as shortages tend to lead to price rises.
It is perhaps worth remembering that the last time the UK was building 250,000 houses a year was in 1978 when councils built 44% of the new homes.
It is also good to see the reforms to the planning law in the Neighbourhood Planning Act to allow for a more robust approach to freeing land for development, with Alok Sharma also stressing the new power for compulsory purchase.
This is an excellent start, but we should also recognise the challenge of ensuring that delays between planning consent being granted and completion of development are reduced as much as possible.
One way to address this particular issue is to rebalance housebuilding to encourage more SME builders back in to the market. It is salutary to note that in 2009 there were 3,800 building companies registered with NHBC – today that number has just about halved to 2,000.
The government clearly recognises this as an issue and is introducing initiatives to encourage this group. Ensuring that a percentage of all large development plots are reserved for custom build projects and SME developers is a great start that is starting to have an effect.
Savill’s recent quarterly development land report showed annual increases of 89% and 22% in the number of plots sold to small and medium developers respectively.
And finally there is the potential for a growing build to rent market. Affordability, the result, I would argue, of decades of under supply, is a growing problem.
A dramatic price adjustment would be politically unacceptable, so perhaps the pragmatic solution is the emergence of a stronger private rental sector. With strong demand in the long term surely this provides an attractive option for investors.
For me these examples of government commitment to diversification in housing delivery are very welcome as I believe that the most likely reforms to delivery and ownership models will decrease volatility. From a suppliers’ perspective this is good news as it increases the incentive for investment.
Coupled with a cross-party consensus on the need to increase the volume of housebuilding, this must surely provide confidence in the long term outlook for the sector. At H+H, despite the nervousness around Brexit, our own (Danish) owner recognises the potential for long term growth in the UK market, demonstrated by its very significant investment in the refurbishment of our Borough Green factory.
If just a few of the other materials manufacturers in our sector felt the same way we might alleviate the risk of ongoing product shortages as we head towards that 1 million new houses target.