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11 November 2009
Why we’re still confident about the Thames Gateway
The Thames Gateway is the number one regeneration project in the UK and probably in Europe too, and therefore it is very important not just to London and the South East, but nationally too. However the biggest constraint to progress currently in the Gateway is the state of the housing market.
Developers will not start projects unless they can be sure of sales. Many sites are large and complex and are burdened with large upfront capital costs and this is all the more reason why developers and investors will think twice before commencing a project. Therefore many schemes in the Gateway won’t get underway until market conditions improve. Most of those projects that are in progress have been slowed down to reflect current sales rates and that is certainly true of our schemes in the Gateway.
The benefit of Kickstart
Some projects are being helped by the government through the HCA and others where they are prepared to bear some of the upfront risks and indeed such intervention is often welcome. Initiatives such as Kickstart, where phase one of funding is now complete, are very welcome and it is beneficial to everyone who’s concerned with keeping new housing supply moving. I was pleased therefore to see HCA Director, David Edward’s recent comments in Building about their continued commitment to the Gateway.
Confidence in the Gateway
I regard the current setback in the Thames Gateway as being relatively short-term. My confidence in the Gateway has not waned and the long-term prospects are still very good.
Whilst we are experiencing this period of slowdown we can nevertheless continue with the preparatory works and then developers will be ready to go once sales prospects improve. Considerable emphasis therefore needs to be placed by public sector bodies on important infrastructure works such as highways investment around Ebbsfleet Valley. Such preparatory work should be progressed now rather than waiting until development programmes can be speeded up.
Learning the lessons
There will no doubt be a number of schemes that will have to be planned rather differently. Lessons learnt from recent years include the fact that too many schemes have been designed to too high a density with a predominance of flats. My concern has always been that this is not conducive to the creation of sustainable communities the success of which, from a social viewpoint, requires a balanced mix of house types and tenures creating a broad spectrum of price ranges and buying options. All stakeholders will need to be very conscious of this issue.
The move away from mono housing types is all to the good, I believe, and from it we’ll get more balanced and superior development solutions. The lessons learnt in recent years must not be forgotten in planning future schemes.
Sustainable solutions
The current pause also gives developers and others time to think how best to include environmental objectives into future schemes. The regulatory demands have of course not gone away in the recession. We need to research how we can best achieve more sustainable developments and move forward with solutions that will have a lasting and positive impact, rather than a potential maintenance nightmare if we do not use proven systems.
Need for public/private partnerships
It is inevitable in my opinion that there will need to be more private and public sector partnering arrangements in place in the future. This will be necessary as funding for development won’t be as readily available as in past years. Banks and funders generally will be more cautious and new funding methods will have to be seriously considered as Savills Research has recently pointed out. This is why I believe public/private partnerships will be the most appropriate way for development programmes to be enhanced in the future.
The key constraint
Funding for homebuyers continues to be the most major constraint in selling homes. Many people who want to buy simply can’t. Hopefully the strict lending criteria will ease a little, but it will not return to the sort of free and easy mortgage funding that has caused some of our recent problems.
Meeting the vision
The Thames Gateway will no doubt make a significant contribution to housing supply in London and the South East of England and where it not to happen it would bring about much greater pressure for development in these regions. We must therefore work with renewed vigour to ensure the vision and the objectives for the Gateway are met.
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21 May 2009
Property developers must cope with the present and look to the future
There has been a huge amount of media coverage in recent weeks of MP’s expenses alongside criticisms of bankers. These issues must not be allowed to overshadow everything else that we must cope with during this recession, including doing everything possible to stabilise the economy and then bring about a recovery. Indeed, we are planning ahead for the inevitable upturn.
We are engaging with those providers of goods and services and considering how the development industry’s capacity can be stimulated through the training and re-employment of professionals and craftsmen who have been made redundant. The question for all stakeholders is how we assist them and offer training to enhance their employment opportunities. Without a coherent strategy and incentives it will be many years before we return to the necessary levels of delivery of 240,000 new homes per annum.
How is my development company coping with recession? Like many developers we have deferred starting on some sites, slowed down the speed of construction on other projects and continuously reviewed our overheads and expenditure. At the same time we’ve been looking at the best ways of selling the new homes that we’ve been building, whether this is via Part Exchange, Shared Equity or other buyer support. As a result in recent months we have been experiencing encouraging numbers of visitors and reservations on almost all of our new home developments.
Where appropriate we have also sought assistance from the Homes and Communities Agency who have been given £600m of additional Government funding in the Budget to kick start a number of stalled housing schemes, including extra funds for HomeBuy Direct a shared equity scheme that we are currently offering on some of our sites.
The scale of what is needed to stabilise the housing market and then bring about a recovery is considerable. Whilst Government assistance is welcome, and will make some difference, it is not enough to get the development industry moving again. The effective rationing of mortgages and finance for developments are still the critical issues.
Whilst we are coping with present difficulties we must not take our eye off the future. We must prepare for it. This is particularly so for developers and many parts of the public and private sectors where forward planning and investment are critical for future success. Improving our infrastructure is a pre-requisite for many developments to move forward and therefore infrastructure works should get underway now. Developers should not wait until the market improves to progress their planning applications. Certainly we have been moving a number of major developments forward so that we will be ready to go ahead with them when the outlook improves.
Please do let me know if we can help you with planning and development issues that you may have.
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6 May 2009
Are we really using our resources wisely?
The development industry has had its capacity reduced by around 50% in under two years – an incredibly short time for such a major contraction. Most companies have reduced their management and staff dramatically, and with the majority of developers relying on the banks for finance to undertake development which has largely not been available, it obviously reduces the overall capacity of the industry to produce the numbers of homes that we know are needed. So how else can our housing requirements be delivered?
I believe we increasingly need to turn to partnerships between RSLs, local authorities, the Homes and Communities Agency (who would inject Government funding) and private developers. We need to be thinking about all of this now, as when markets improve and housebuilders want to increase their programmes they won’t be able to achieve this in any significant way without public / private partnerships.
This grand idea could easily be thwarted however by lack of Government funds going forward. In this respect isn’t it time for Government and their advisers to look at how to spend taxpayers money more efficiently, especially in the depths of a recession? How much is wasted? As John Gummer highlighted in an excellent column in the Estates Gazette on 25 April there are numerous examples of billions wasted on white elephants. Indeed the Whitehall savings announced in the Budget are a trifling sum.
In the private sector we are well aware through recent bitter experience that savage cuts have had to be made, but we have not seen any meaningful cuts in the public sector particularly at national level. Obviously we need to ensure that essential services are adequately funded, but there are plenty of non-essential services that could be cut back. Is everyone in the public sector fully employed on tasks that matter, that will really make a difference and add value? I doubt it. Is the taxpayer getting value for money? Now more than ever we need to be efficient and cost effective in all that we do. I urge the public sector to work with the private sector to help make this a reality.
We could use some of the savings for a high-speed rail network for example and we could start to build the new homes that the nation needs to reduce the backlog of the last decade. This is what would retain development and construction skills and boost housing supply and the economy. If we don’t make the big cuts that are necessary, we won’t have the resources to make a real difference.
There needs to be a thorough review of public spending and maybe then more money would be available for housing. Many stalled housing schemes need pump priming to get them back on track. Otherwise I fear if we don’t do something significant soon the nation is going to face an increasingly severe housing crisis.
A further key constraint on development going forward could well be the recent cutbacks that have been seen in some local authority planning departments. Prior to the recession most planning units were under-resourced and over-stretched by the sheer number of applications and their increased complexity. Whilst the number of planning applications has reduced in recent times, my concern with any cutbacks is that when markets improve and applications start flooding in again development will be severely constrained by the lack of local authority planners.
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2 April 2009
The fall in house building must now be taken seriously
The increased likelihood that only 60,000 new homes will be started this year is very worrying. It is just 25% of the Government’s target of 240,000 new homes which is the level we need to meet if we are to keep pace with household formation.
Even before the current recession, we have not built anywhere near 240,000 new homes for many years, so we now have a serious backlog that is building up faster and faster. As David Pretty recently pointed out, by 2010 pent-up demand for homes to buy, to rent and for affordable housing could well be over 1 million, and that is dangerously high.
What does all this mean for housing supply in the years ahead? The Government has been trying to improve the situation recently, but it is not nearly enough. There are of course many calls on the Government, but I believe that a serious housing crisis is looming and for those people who are on ever lengthening housing waiting lists it is already here!
A good many commentators are now saying that the banks and building societies will never again offer 100% mortgages and that it is right that people have at least a 5% or 10% stake in their home. As a nation we overwhelming believe in home ownership, but we have got to get used to saving for a deposit and if people cannot afford to do that they will need to rent.
We are therefore likely to need an enlarged private rented sector in the years to come. This is because affordable housing will not be able to be delivered at a rate that is required to make up the shortfall in private housing, as at present its business model is inextricably linked to the strength or otherwise of the private housing market.
Government funding can only come from raising more taxes or borrowing more money and that just is not going to happen going forward, so we need to find other ways to meet our housing needs.
I’m pleased therefore that the Homes and Communities Agency is expected in the next few weeks to canvas support among potential investors for the construction of developments that could be privately rented out to meet housing demand. They are said to be exploring the idea of guaranteeing a minimum rental income to persuade the private sector to participate. Such delivery models, which include joint ventures with the private sector, should be designed to be flexible enough to adjust to different market conditions.
I do not believe that the house builders’ business model will ever be the same again. Investment in the private rented sector is one such new approach that the sector should look at seriously with open minds.
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10 February 2009
The impact of recession on regeneration and sustainability
I have been reading with interest in the last few days the Parkinson Report on the impact of the credit crunch on regeneration, the housing market and commercial property. It is so disappointing that regeneration and sustainable development, which have really progressed in the last few years, are being slowed down and in some cases halted due to the recession.
Regeneration has made a real difference across the country in the past decade since the Urban Task Force Report and its recommendations were published. Many of our towns and cities have benefited considerably from regeneration projects, but there is still much to be done. Sustainability will also continue to feature as an important issue, but progress is likely to be affected.
The problem is that the significant downturn in the housing and property markets has resulted in lower prices because of fewer buyers and an overall lack of confidence. Many developments which have been programmed to start are unable to proceed often due to a lack of funding. As a result of the credit crunch, lenders are generally short of funds and are also lacking in confidence. If they are lending at all they will only lend on much stricter criteria which can often be to the detriment of urban regeneration schemes in particular.
Some people will be pushing to continue with the development of affordable housing where it is largely being paid for by Government funding. However, my concern is that affordable housing should be part of mixed-tenure projects as this is very important in creating sustainable communities. If affordable housing is built separately from private housing it could lead to mono-tenure estates with adverse social consequences.
We are currently seeking ways and means of enabling regeneration projects to take proceed where we are able to secure financial support from the Government through its Homes and Communities Agency (HCA). I believe the HCA can play a very important role during these difficult times. It is also essential that Local Authorities and RSLs work in partnership with private sector developers to find ways to enable projects to start rather than being held over until the recession ends.
I will post part two of this blog shortly.
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Information correct as at 22/06/2010