Building more homes is the only real answer to Britain’s housing crisis and the majority of people will more than likely agree.
In principle, building more homes sounds straightforward but in practice, it is far more complicated to achieve.
Government Incentives:
The UK Government have tried various schemes and projects to incentivise the construction industry but have simply not been able to deliver the number of homes required by the UK population.
Tens of billions of taxpayers cash has gone towards the ‘Help to Buy’ scheme which is aimed at helping homebuyers into the property market with an equity loan. Essentially, this scheme was designed to keep the housing market moving, despite the escalating prices. Planning reforms have also been abundant, with the Prime Minister announcing new planning rules in March 2018, in the hope that previously unavailable sites be considered for new developments.
Have these gone any way towards ‘fixing’ Britain’s housing crisis? It appears not but it has certainly benefited the large construction firms who have raised the price of their developments, meaning house prices have been pushed up once again and first-time buyers have once again, been priced out of the market.
Since the planning reforms in 2012, permissions have increased by 40 percent but completions have only risen by approximately 25 per cent. So for all the additional permissions being granted, the construction industry is still not able to deliver a comparable number of homes.
What About Land?:
With the UK Governments target to build 300,000 new homes a year, what else can be done to help get Britain building?
Land is a fundamental component for a new housing development, without it, the only alternative is to build on top of existing structures but how feasible is building upwards?
In theory, adding floors to an existing property makes sense, particularly in inner city locations where there is a high demand for homes to rent or buy. In practice, increasing the housing supply in inner city locations will put added strain on schools, the health service, public transport and parking so these factors need to be taken into consideration along with the affordability of city living.
The UK Governments proposed reforms to make it easier to build upwards on existing shops, offices and blocks of flats is all very well and good but rural communities need housing too and this is where the supply of land relies on private landowners, who are often reluctant to sell their land at a viable price.
House builders are facing a dilemma, higher land prices push up the price of a completed development, forcing the construction industry to build higher value properties. This does not help those on lower incomes that the UK Government are so desperately trying to help onto the housing ladder.
The planning reforms proposed by the UK Government go some way towards helping deliver the homes that are so desperately needed but with Brexit looming, the construction industry could be facing a huge skills shortage.
The Construction Industry and Brexit:
It is estimated that approximately 13 per cent of construction workers in the UK are foreign-born, this rises to around 50 per cent in the South East and London.
Housebuilders in the UK are already struggling to recruit the talent they need and with tighter immigration controls potentially limiting the number of overseas workers, the lack of suitably skilled bricklayers, carpenters, plumbers and electricians could push up wages which in turn could see smaller house builders struggling to compete.
The amount of SME house builders in the UK has declined by 80 percent over the last 25 years, with one-third folding during the financial crisis of 2007-2009. These small firms are responsible for building a large proportion of residential housing stock so their importance in the construction industry and to the Government’s ambitious house building plans should not be underestimated.
Access to Finance for SME House Builders:
Traditional lending streams have all but dried up for those SME house builders fighting to stay in business, with over half (54 percent) stating access to finance is a major barrier for them in building more homes. Strict loan to value limits imposed by banks mean smaller house builders struggle to find the equity required to qualify for a bank loan, meaning for banks, the risk is too high to even consider lending. For these businesses, an alternative to traditional borrowing is necessary.
The good news is, there are plenty of alternative funding options available. With an enormous amount of specialist development finance lenders in the market, who understand the construction industry and are able to offer terms that cater for the needs of the smaller house builder, bank lending should all be but a distant memory for those looking to finance their building project.
The UK house building sector is heavily reliant on a small number of large house builders but, if the Government is to reach their 300,000 new homes a year target, SME builders will be a critical component.
White Paper Promises:
The Housing white paper promises to diversity the house building sector, giving smaller firms improved access to land and a speedier planning process. A reformed Construction Industry Training Board, announced in the Industrial Strategy white paper also promises to deliver future skills needs, particularly amongst SMEs.
On paper, the Government appears committed to get Britain building but are their white paper promises enough, or does more need to be done to help builders deliver the high quantities of affordable new housing the country needs?
