Brian Berry is Chief Executive of the Federation of Master Builders.
When it comes to housing, politicians tend to talk big, but the strength of our housing industry rests on the many thousands of small building firms.
Rarely has housing featured more highly on the political agenda than it does now. Even against a backdrop of seemingly never-ending political drama, the crisis in the affordability of housing being experienced by millions of people in this country is one no serious politician can afford to ignore.
In considering how to tackle the dysfunctions of the housing market, there is a temptation, quite understandably, to “think big” in terms of large scale development, garden cities, major infrastructure projects, revolutionary new off-site technologies. All of these responses are valid and all form part of the answer. But we cannot, and must not, lose sight of the vital role which small and medium-sized (SME) builders, and the cumulative impact of small scale delivery, have always played in the UK housing market.
Small firms and barriers to building
Ensuring competition and diversity among the providers of new homes is a vital part of the equation. In the late 1980s, SME house builders used to build as many as two-thirds of all new homes but by last year that share stood at less than a quarter. We now appear to have lost more than 50 per cent of SME house builders active prior to 2008 and we have now reached a point where around a dozen large firms are responsible for building about 60 per cent of all new homes.
Some of this long-term fall has been the result of mergers, as larger firms have absorbed smaller players, but with each recession since the late 1980s we’ve seen large numbers of these smaller firms disappear from the market, and too few new ones emerge, as the planning, financial and regulatory strictures within which they operate have served to create ever-higher barriers to entry. This is important precisely because the housing crisis we face is at root a supply-side failure.
The Conservatives’ record
Conservative ministers in the last two governments have recognised these problems and have acted to address them. There have been concerted efforts to bear down on unnecessary regulation and complexity, and a growing recognition of the importance of small-scale development and the barriers to it. Diversification of housing delivery is one the key elements in the recent Housing White Paper, which echoes our members’ analysis that the key constraints on their ability to grow are availability of land (suitable small sites), availability of finance and disproportionate difficulties involved in getting planning permission.
Numerous policies set out in the Housing White Paper and a range of previously-announced measures aim to push down these barriers: from proposals to ensure that more small sites are allocated for housing in local plans to provide opportunities for SMEs; to the Government’s £3 billion Home Building Fund, of which large parts will be targeted at SME builders; to new more streamlined planning processes for smaller and brownfield sites. Government is rightly acting to nurture a healthier, more diverse house building industry.
Perfecting the manifesto
So, the FMB, as the representative of many SME house builders, is positive about the current trajectory of government policy. However, “we will focus on ensuring current policies are well-implemented and given time to work, and guard against too much further policy change” is a pledge unlikely to ever appear in any manifesto, even if right now this would probably garner appreciative nods of support across the housing sector.
There are certain areas where we think the next government can and should go further. It is about time the excessively rigid policy against development of garden space was re-visited. This often excludes from consideration perfectly suitable sites in very sustainable locations, and by doing so serves to increase pressure in the system for incursions into the greenbelt. More finely-tuned and locally-decided policies, including appropriate design codes, could provide necessary checks against inappropriate schemes.
On access to finance, a loan guarantee scheme or similar mechanism could encourage the major high street banks, whose lending policies tend to discriminate against small scale developers, to be less restrictive in their approach to the sector.
We would also offer support to Theresa’s May’s pledge to enable local authorities and housing associations to build a new generation of council homes. There is a need for affordable rented homes, alongside other forms of tenure. The alternative course, pursued over recent decades, has been to try to squeeze ever more affordable housing out of private sector developments, including from the very smallest of sites. This has certainly reduced the economic attractiveness of small-scale development, and more generally simply pushes up the cost of private housing. By contrast, enabling local authorities to build themselves, as they did in the past, is an infinitely less market-distorting means of providing these homes.
Existing homes matter
If I could make one final plea to the next government, it would be to grant our existing homes and buildings the same importance they grant to those which don’t yet exist. More than 85 per cent of our existing homes will still be in use in 2050 and beyond. Making better use of space within them, lengthening their lives, reducing their running costs, improving and extending them, or converting them to more economic uses – these functions should be seen as crucial aspects of our overall housing strategy and yet too often they receive little or no attention. Again our nation is dependent on the many small construction firms who do this work.
Government should have little or no direct involvement here. These are decisions best left to individual home owners and landlords. Yet, government plays a vital role in structuring the incentives we face in the use and maintenance of our buildings. Take VAT, for example. Though supposedly a consumption tax, every time someone chooses to invest in the maintenance, repair or improvement of their home a 20 per cent VAT charge is levied on them. Brexit allows us an opportunity to look again at these sort of issues – a once in a lifetime chance to shape a rational taxation policy free from any imposed constraints.
VAT policy doesn’t just disincentivise investment, it heightens unfair competition from cash-in-hand operators who undercut professional construction firms and exist in a shady, under-regulated black market economy. To counter this, some have suggested a licensing system for all builders. The FMB’s Programme for Government proposes a much less bureaucratic, more market-oriented alternative. Introducing, through Building Regulations, a mandatory warranty requirement for all works that require structural engineering calculations would produce a paper trail that reduces scope for cash-in-hand, and allow the judgements of insurers, not bureaucrats, to decide which builders are competent enough to be let loose on our homes.
Contrary to the situation in the SME house building sector, small firms operating within the domestic repair, maintenance and improvement market are squeezed by a market marked by limited regulation and very low barriers to entry.
Far from being inconsistent, I think this is a message that Conservatives will have a natural understanding for. Strong economies and strong markets work on a basis of both healthy competition and smart regulation. Nowhere is it more important to get this right than among those who build and maintain the homes we live in.