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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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Information correct as at 22/06/2010