Natalie Elphicke OBE is the Chief Executive of The Housing & Finance Institute.
2018 has just begun, and it’s clear that the Government wishes to make this year the turning point for housebuilding and homeownership. For too long, demand has outstripped supply, resulting in house prices that are beyond reach of far too many. The Budget, a new Housing Minister and the rebranding of DCLG as the ‘Ministry of Housing, Communities and Local Government’ along with the re-badging of the Government’s delivery arm, the Homes & Community Agency as ‘Homes England’, certainly sets the scene.
The Budget was a political success. Housing took centre stage, as Philip Hammond announced a well-received, ambitious target for extra homes of 300,000 homes a year, stamp duty relief for first time buyers, a push towards offsite construction and £44 billion of investment. 2018 is the year in which it will start to be judged, not on its words, but on its outcomes.
Like the Government, the Housing & Finance Institute would like to see more homes being built. Great progress has been made in housing, and the record in reversing the collapse in housebuilding immediately following the credit crunch is a strong one.
The country is on track to meet the million homes ambition set previously. The number of new homes started in 2016/17 was at the highest level recorded since 2008/09. It was the fifth highest year in more than quarter of a century. In England, over 160,000 homes were started, up from over 140,000 the previous year. However, homes completed in England last year sat at 148,000 – a smaller increase from the 140,000 homes reported the year before. A further increase in building from 160,000 homes to 200,000–250,000 homes a year would be impressive but 300,000 is a tough target.
The fact is that there have been only six years since the Second World War that more than 300,000 homes a year have been completed in England. The last time it was achieved was the year of the Moon landing – 1969. So how will those 300,000 homes a year be achieved?
Our industry discussions in the second half of 2017 found that housebuilding industry sentiment continues to be positive about building and growth. The market is seen to be running at a stable level, albeit with a slight downside potential. The view has been ‘steady as she goes’, rather than gearing up for a major shift in delivery numbers.
Sentiment remained unchanged immediately after the Budget. This would suggest that the current higher level of housebuilding is sustainable, but that a big leap forward is not currently forecast. This is a view shared by the Bank of England, which reported just before Christmas that “demand for new housing showed signs of softening nationally”.
There are four key reasons why housebuilders are not as confident as they might be, notwithstanding the significant political commitment and unmet market need.
First, Brexit negotiations and the economy. There are concerns over the economy’s resilience and market access to skills and materials following leaving the EU.
Second, macroeconomic events. Wage growth remains sluggish while there are upside pressures on inflation and interest rates. Meanwhile rising costs of living remain a matter of concern. All of these put pressure on the consumer to constrain spending and by extension housing market confidence.
Third, affordability. Affordability of rents across all ages and access to mortgage finance for younger people are a worry.
Finally, quality. There are fewer housebuilders following the credit crunch, but those builders have expanded to meet the same housing numbers that a larger number of players were meeting before it. Not for all, but for some, the rapid expansion has been at the expense of best levels of quality control, and some dubious practices over leaseholds. The Lords started its year by exploring this quality control issue, and how it has impacted new purchasers. It is important that housebuilders maintain high standards of homes, as well as simply increasing numbers.
It will be vital to mitigate these risks so that homes continue to be built in line with the needs of the nation and become more affordable. So what needs to happen?
We have to improve infrastructure as well as administration systems to monitor housing delivery in real time. Utility companies should be forced to be reliable and transparent on pricing. With mediators and arbitrators, the delivery process can be smoothed, especially for smaller builders. The Government needs to make housing a specific national infrastructure priority. Right now, a whole host of things are said to be top infrastructure priorities. Yet, remarkably, housing the nation is not among them. This needs to change. The Government must not only take housing infrastructure seriously, it must be seen to do so.
The Government also needs to continue to support housebuilders and ensure that quality and well as quantity is delivered. A firm focus on modular housing and state of the art manufacturing would boost productivity and help the Government to meet its housing targets while securing quality, consistency and affordability.
We also need a step-change in financing. To build 300,000 homes will need a lot more money – billions and billions of pounds. Public finance from government and councils is critical, and more could be done to unlock the potential from local authorities, but it is not enough for the scale of investment needed to support 300,000 homes every year. There is substantial finance capacity in the private finance markets and pensions funds seeking housing assets. Mortgage lenders have a strong appetite to lend, yet more needs to be done to help first time buyers. Whether it is housing associations, council or market housing, greater attention is required to bring public and private finance together to support housebuilding.
Dominic Raab, the new Housing Minister, faces a tough challenge in current market conditions as well as a tough target in 300,000 homes. This is set against a backdrop where the Prime Minister has raised the political stakes by making housing delivery her personal priority. So to succeed, the Government must activate the rocket boosters, adopt a radical new approach and then – and only then – will we see housebuilding at a rate last seen in England when Neil Armstrong made that giant leap for mankind 49 years ago.