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1 October 2009
Improving housing supply and housing markets - does mortgage finance need to be thoroughly reconsidered?
Recently we would appear to have seen the first signs of a long-awaited revival in the economy. However, the short-term outlook must be viewed with caution. It’s simply too early to say that a sustainable recovery is now underway, but the early signs are encouraging. However, there are uncertainties arising from the country entering a pre-election phase and from unemployment continuing to rise.
When the recovery does get underway it will show even more starkly that there is a significant shortage of housing in Britain. In better times we have not been producing enough new homes to meet the demand, let alone now when production levels are at historic lows. This is widely recognised by many people and government too, and therefore it must be of considerable concern. It’s important therefore that every effort is made to increase the supply of new housing and a broader, more competitive market for home loans would be an important aspect of this.
Reconsidering mortgage finance
Properly functioning housing markets rely very much on the availability of finance for home loans and yet it does not look likely that the supply of funds will increase dramatically for some time yet. This will put a break on house prices recovering. Does the whole issue of finance for house purchase therefore need to be thoroughly reconsidered? Is the reliance on the banks and building societies as the principal suppliers the only answer for the future?
The volatility of finance from these institutions during this recession has had serious consequences for the housing market. Government needs to address how home buyers will be financed in the future. Are there for example other financial institutions likely to be interested in some form of public / private partnership that specialises in finance for home loans? Lord Turner has considered the way that banks operate with a view to more competition and it would be advantageous for the stability of the housing market going forward if something similar would happen to the home loan market.
Planning and localism
As I’ve noted in my blog previously, planning is a significant restriction on housing supply. The system has been criticised by the development industry for years and is generally slow and cumbersome. It is an issue that a future Government is going to have to address.
The Conservative’s localism agenda is laudable in a number of ways as community led initiatives can make a real impact on people's lives and they are rarely dependent on large amounts of grant funding. However, localism without local economic development targets could well mean no development activity whatsoever for the foreseeable future. To ensure a decent level of housing supply in the future surely what we need is localism in response to national housing policy.
Affordable housing
The need for more affordable housing has significantly increased as there are so many more people at present who can’t afford to buy a home or pay market rent. Housing associations and local authorities are their only real option at present. However, new affordable housing has been significantly curtailed due to the reliance on cross subsidy from homes for sale and many regeneration and affordable housing projects have subsequently stalled during this recession.
Government through the HCA has introduced schemes to help stimulate new private and affordable housebuilding but these initiatives, as well intentioned as they are, are of limited scope and therefore impact.
Design quality and sustainability
Whatever initiatives come about to improve the supply of new housing it is very important that high design standards are achieved. CABE’s recent research shows how important this issue is to the public. There has been an improvement in design standards by many developers in recent years, but sadly this has not applied across the board as much as it should have.
There’s also the important issue of sustainability – environmentally, socially and economically and these issues will have to be addressed in any programme designed to increase the supply of new housing. Whatever action is taken we must ensure that we produce better quality homes that are sustainable and improve people’s quality of life.
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25 August 2009
Is the housing market recovery sustainable?
We are beginning to see signs of stabilisation in the housing market, which is encouraging, but can this be sustained? The availability of finance for mortgages and development is key, but it is unknown when the supply of funds will improve.
As the Bank of England has stated earlier this month, “It will take time for banks to repair their balance sheets and they face considerable challenges in replacing those sources of funding that dried up in the financial crisis.”
Housing demand gets ever greater, but additions to housing stock levels are negligible at present which will have significant social and economic consequences in the future. Therefore if we don’t increase housing supply the need and demand will only ever increase for those seeking a home.
Caution required
The modest signs of improvement in terms of housing starts and prices are welcome not least to housebuilders and developers who have endured a very difficult period in the last 18 months or so.
However, I would still remain cautious with respect to the housing market. Housing starts remain 53% lower than their peak three years ago and lending is still 36% below a year ago. Indeed it is still the lowest July lending figure since 2001.
The positive news in the housing market comes from an unprecedented low earlier this year. Furthermore, there are three key risks to recovery in housing. With unemployment continuing its rise towards three million, this could result in a fall in demand for house purchases and an increase in supply from those forced to sell.
Secondly, recovery in the housing market is heavily dependent upon the availability of finance rising further and while it has increased over the course of this year, this has been from unprecedented lows. It will need to continue rising to meet the pent-up demand for housing in this country.
Finally, there are concerns that even when demand does pick up, then the industry has lost much of its capacity to deliver due to this recession.
Affordable housing
The supply of affordable housing has been nearly as hard hit as private housing due to the fact that much of it today is delivered through Section 106 agreements and cross subsidy from homes for sale. The upshot is that housing associations have been as badly affected by the recession as housebuilders have.
The latest thing that will add to the difficulties of the associations is rental levels being reduced by 2% next year which will affect their incomes further. It is predicted that this could lead to a reduction of 4,000 new affordable homes being built each year.
Dealing with the housing crisis
I don’t believe the Government is addressing the issues with anything like the vigour that they should be. What is the plan for the future? The nation has a housing crisis and we need a robust plan to deal with it.
The Government has introduced a number of short-term measures but whilst these have been welcome, many of them have been robbing Peter to pay Paul. The effect so far has been of increasing the uncertainty around such worthwhile programmes as the Decent Homes standard and the removal of funding to assist some new developments to move forward.
The Government also needs to address continuing shortages of permissioned land, and the impact of regulation and policy on development viability, both of which are major barriers to a sustained recovery in house building.
The time taken to receive planning consent is still not nearly as good as it needs to be. If everything else was right in the housing market, which of course we are a long way from at present, we are not going to be able to improve supply if planning remains as it is now.
The supply of new housing ought to recognise the demands for sustainability not least the Code for Sustainable Homes and the requirements to comply with it. This means we need increasing numbers of homes that are suitably efficient to meet the Code. This increases development costs significantly thereby reducing viability at time when increasing supply is a priority for the nation.
So, in summary, recent news in the housing sector has been positive, but there are downside risks and, as a consequence, I believe we need to be cautiously optimistic about a sustained recovery at this point.
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20 April 2009
Why we need more collaboration between business and universities
I spoke recently at the Lord Stafford awards in Cambridge which was a very enjoyable evening and the first time they have been held in the East of England. The awards, which were first developed in 1997, ‘recognise and encourage the development of collaborative relationships between businesses and universities’. The Lord Stafford awards acknowledge a number of highly successful innovations that have come to fruition through joint working between companies and universities.
I’m sure I was invited to speak because of my long-term involvement with universities at a number of different levels including being on the Board of Governors of Anglia Ruskin University between 1988 and 2002 and for six of those years I was Chairman of the Board.
While I am aware that many businesses have already become involved with universities, I believe there’s still room for more to do so. In the housebuilding industry we went through a period some years ago when companies were either complaining about the quality of the graduates or about their training – and yet those employers had not involved themselves in helping to model university courses to suit their needs.
I believe we could do more to develop confident businessmen and women. Many degrees simply do not go far enough and both business and universities need to look seriously at this issue. Of course it’s not only those disciplines directly relating to one’s own business that matter; it’s very important to the wider economy that employers play a broader part in university education.
I was most encouraged to hear recently that, as part of a national pilot, Anglia Ruskin University has received £10million of funding for Employer Engagement. This is being used to pump prime innovative forms of partnership with employers and I understand it is attracting considerable attention in the Eastern region and creating new partnerships between business and the university.
The other very important area requiring attention is that some industries will have to think about remodelling. There is talk at the current time that, for example, the business model for house builders may never be the same again, and I don’t believe that we’re working hard enough at the moment to evolve a new model. There is something here, I believe, for the worlds of business and universities to come together to share their skills, experience and knowledge.
The current economic adversities are impacting on our universities just as they are on industry. Now more than ever we have to work together. I believe that universities and the business sector have got to co-operate in seeking ways of ensuring that graduates are not left unemployed. We can’t as a nation afford to waste this talent and we have to find ways to engage these graduates. Companies could take them on, maybe on a part-time basis, and they could perhaps use their spare time to do further training through their university. I also believe that there is a strong case for more secondment, with academics having periods of practical experience in industry and business, and business people having greater exposure to university teaching and research.
I believe that we have seriously to consider some changes in our culture and the way we live. We have moved into an era when the sustainability agenda is becoming increasingly important. I really think as far as the housebuilding industry is concerned that we are at the beginning of significant change. We have obviously got to do more than we already are to reduce CO² emissions. The zero/low carbon economy is going to be a huge challenge and we need innovative business models, products and lifestyle changes.
In this context the opportunity for new sustainable products and services is immense so there is a great opportunity for business and universities to carry out much more R&D together. Coaching, mentoring and education will also be a huge part of sustainability going forward which offers further opportunities for businesses and universities. Indeed, I believe that the education sector is integral to the communities that we are creating.
I summarised my speech by saying that despite the current economic conditions and the adverse impact being felt we must work together for a better tomorrow. We have to work our way through these times being confident that there will be a recovery and that economic conditions will improve, partly due to what we ourselves do today.
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16 February 2009
The impact of recession on regeneration and sustainability - part two
I hope you enjoyed part one on this post below. Let me start part two by saying that financial viability is the biggest problem for private developers at present. Unless projects are financially feasible the private sector will simply not invest. Financial assistance from the public sector is particularly important at this time in supporting the viability of projects. Public funds can be safeguarded and through flexible arrangements financial support could reduce as the recovery occurs and ‘claw-back’ provided as markets improve and financial viability is restored.
The current difficulty is we don’t know how long the recession may last. I expect it’s going to with us for a year or two and when the recovery does occur it is likely to be more gradual than the sharp upturn we have seen after previous recessions. It is therefore important that we find ways and means of keeping the regeneration programme going be it at a slower pace than would have been expected in more buoyant times.
On the issue of sustainability there is a set back, due to the recession, in the amount of research and development that is being undertaken to reduce the environmental impact of buildings, in particular of material and component parts. Indeed, this is an area where more Government funding will be needed in the short-term to maintain research, as the cost of delivering the Government’s Code for Sustainable Homes is not economically viable at present. For the sake of our customers we must also ensure that the innovative materials and technologies that are required to satisfy the Code are reliable in the long-term.
The development industry faces a highly complex challenge of balancing the need for sustainable homes, buildings and places, whilst producing more new homes in response to the Government’s highly ambitious targets, particularly for affordable housing.
What we must hope is that the recession does not last too long and that the regeneration of our towns and cities can be progressed in a sustainable way.
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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