"Government-backed funding initiatives often lack longevity, are too complex to navigate and overall awareness of the schemes tends to be low"
Setting the scene
The housebuilding sector contributed over £42 billion to the economy and supports over 770,000 jobs. Despite its size, the housing sector is in crisis and the UK has an estimated deficit of 4.75 million homes.
Following October’s political party conferences, where Labour pledged to build 1.5 million homes and ‘bulldoze the antiquated planning system’, housing is set to be a key battleground in the run-up to the next election. The government believes providing more new homes will help to level up the country and reduce inequality, however, it has yet to find practical solutions to deliver them.
Our white paper ‘Solving the UK’s Housing Shortage’ is the first report of its kind to examine every element involved in the housebuilding process and scrutinises hundreds of pages of government policy to lay bare both the successes and abysmal failures.
With input from 12 influential industry leaders, including Knight Frank and PwC, the white paper offers opinions from those at the coalface of housebuilding, with actionable recommendations that cut through political rhetoric.
The key barriers to building
There is endless discussion, accusation and frustration about where the issues lie, but as this white paper reveals, the key components of the housing sector, from planning to land supply, and developer incentives to affordability, are inextricably linked and interdependent.
This means there’s no silver bullet fix to address the housing crisis and solutions must be holistic. Nonetheless, many of the major barriers to building can be attributed to central government policy, and unsurprisingly, 92% of SME housebuilders are unhappy with the government's approach to housing.
So what are the key barriers?
Planning
Delays in the planning and development process have caused SME housebuilder numbers to drop by 80% since the early 90s. 93% of SME developers say securing planning permission is a problem and 76% believe local authority staffing shortages are the main cause of delays.
Land supply
Over 90% of land in England is of non-developed use, yet just 0.2% is available for development. The current system fails to encourage development. Councils are often under pressure to reject plans. Authorities have no immediate financial benefits.
Supply chain
Ongoing shortages of raw materials and skilled workers caused unprecedentedly high build costs. 60% of imported construction materials come from the EU - now subject to Brexit complications.
Environmental
The Future Homes Standard requires homes built from 2025 to produce 75-80% less carbon emissions. There are calls for no new homes to be connected to the gas grid from 2025. Nutrient neutrality guidelines affect over two-thirds of SME developers and restrict development across 74 local authorities in England.
Affordability
Inflation, increased mortgage costs and restricted availability, plus inflated rent, have created affordability issues and an equity gap for potential homeowners. Developers are therefore reluctant to build houses that may not sell.
Funding
41% of SME housebuilders said sites they were interested in had stalled due to finance issues.
Since 2008’s crash, lender criteria have tightened, but the main factor for finance being less readily available is the rising base rate. With every 1% increase, a developer needs £10,000 more in equity per £1m borrowed.
With less equity available, the amount developers can borrow with the same amount of equity is now 25% lower than last year, creating a liquidity crunch.
Government-backed funding initiatives often lack longevity, are too complex to navigate and overall awareness of the schemes tends to be low. The impact of government schemes would be ‘amplified by harnessing the potential of established brokers and lenders already operating in the development ecosystem.’ (Norman Chambers, NACFB).
Transparent market access is difficult due to an absence of technology, with the CRE finance sector being one of the last to digitise.
Framework for moving forward
Our white paper not only identifies key areas where change is desperately needed, but our recommendations give politicians from all parties a comprehensive framework to address the housing crisis and repair an undeniably broken system.
1. Increase planning department funding now - allocate more funding to planning departments, rather than consulting on whether to increase planning application fees. It may cost developers more in the short term, but they and the whole economy will benefit from a faster process long-term.
2. Provide greater household projection clarity - introduce a methodology that enables local authorities to identify housing requirements and adhere to new local plan timetables.
3. Introduce a database for all public-sector land - including local authority and national government-owned. Identify suitable brownfield sites and audit green belt land, reclassifying low-quality ‘grey belt’ areas.
4. Focus use of the Infrastructure Levy on supporting local communities & infrastructure - contributions must not be used to plug other authority financial gaps but benefit the local communities where house building occurs.
5. Improve government & private-sector funding for developers – increase longevity, scale and access to government-backed schemes. Improve access to development finance from the private sector through investment in further digitisation.
6. Implement a robust energy and water infrastructure strategy – improve energy and water infrastructure, with more wind farms to reinforce the electricity grid. Address key contributors to nutrient-related river pollution, such as the agricultural industry and water companies, rather than developers (who contribute just 5%).
7. Increase buyer affordability by bringing back Help to Buy - or a similar scheme.
8. Build market confidence in MMC - use MMC to build council and housing association properties where a mortgage isn’t necessary, to prove its longevity and efficiency.
9. Invest in technology to facilitate more building, buying and selling - in addition to digitising planning and land supply, digitise the buying and selling of homes to remove the archaic paper-based conveyancing process.
10. Adopt a culture of collaboration and action – cross-party government ministers or representatives must meet with housing sector stakeholders to move forward with practical solutions. Also, end the revolving door of housing ministers.
