Why £44 billion failed to buy the industry’s confidence

Given that housebuilding targets have not been met by successive governments for decades, Phillip Hammond’s announcement that Britain will be building 300,000 new homes a year by the mid-2020s was bound to be taken with a large pinch of salt.

The financial markets were largely unmoved by the £44 billion support package announced in the budget, with major housebuilders’ shares taking a marginal dip on the news a review of land banking practices was to be launched. The Chancellor’s headline act, abolishing stamp duty for first time buyers, attracted criticism that stoking demand without matching supply would only inflate prices.

Hammond has since protested that his measures to stimulate supply have been overlooked. However, perhaps it would be more accurate to theorise that onlookers were underwhelmed.

“It would be churlish not to welcome the Chancellor’s focus on housing in today’s Budget and the £44 billion package of capital funding, loans and guarantees he announced,” said Mick Sweeney, Chief Executive of Radian. “What that actually means in practice, we will need to wait and see.

“There was little to convince me in today’s Budget that the government has a long-term plan to deliver on its new target of 300,000 homes each year. More funding for existing programmes is fine but we need more fundamental change. There was no commitment to look again at releasing poor quality Green Belt land for housing and no review of the Right to Buy which is simply not delivering the new homes we were told it would.”

The Chancellor unveiled a raft of measures, but will any of them be enough to achieve an ambitious target that the UK hasn’t hit since 1977? The last time Britain was building 300,000 homes a year, almost half of new builds constructed by councils.

Amongst the measures, the government has promised to lift the Housing Revenue Account debt cap which would free up local authorities to build the housing needed. However, the debt caps will only be lifted in areas of high affordability pressures.

“How will those areas be defined?” asked Scott Dorling, partner at Trowers & Hamlins. “A £1 billion cap on this additional HRA borrowing capacity, by 2020/2021 has been provided and councils are going to be asked to bid for this additional borrowing capacity. Will this measure lead to a renaissance in council house building on the scale that is needed to assist in reaching the 300,000 new homes target?”

It seems we will have to wait and see. “The promise of a £44 billion investment for the housing market and increased freedom for housing associations to build more homes ought to help with delivery, but the proof will be in the pudding as to how many new homes are created for first time buyers,” said Martin Walshe, Head of New Homes, Cheffins.

More money is being pumped into the homebuilders fund, which should put some SME builders back on the playing field. However, smaller building firms will need more than financial muscle to secure sites and untangle red tape.

“The number of SME builders has collapsed in recent decades so more money for SME builders is welcome and needs allocating quickly,” said Steve Baseley, Chief Executive of the Home Builders Federation. “The planning system remains a significant constraint on the industry’s ability to deliver and improvements are positive, though further proposals form the White Paper need bringing forward.”

Among the new measures, £630 million has been earmarked for a ‘small sites fund’; £8 billion of financial guarantees has been promised to private housebuilders; £2.7 billion has been set aside for the housing infrastructure fund; and £1.1 billion is to be thrown at urban regeneration.

A comparatively small £34 million will be spent on skills and training. “There are more positives, but where is the construction workforce going to come from to meet the demand?” asked Brendan Sharkey, head of construction and real estate at MHA MacIntyre Hudson. “£34m to develop construction skills seems a little tight. Yes, T levels will help but this is a conveyor belt that has yet to roll.

“Potentially developers will be attacked for “land banking” but if you don’t have the labour resources to build, that criticism seems unreasonable. Indeed, the pressure to build will mean skilled labourers can dictate financial terms. This has been prevalent for the last few years, but covered by growth in house prices. There’s an obvious weakness without adequate skilled labour. It’s likely that house prices will continue to go up with insufficient numbers built – not because of land banking, inadequate infrastructure or lack of finances, but because there is insufficient skilled labour.”

Other industry players have argued that the money would have been better spent on modern methods of construction.

“I am not going to grumble about the injection of capital into training, because that is clearly necessary, but some would say this was a short-sighted budget for a construction sector where the future is likely to mean less skilled labour and more technological change,” said Mark James, a partner in the dispute resolution team at law firm Coffin Mew. “I can see the focus of construction rapidly switching to automation and this was an opportunity for the chancellor to promote and support investment in automation in the construction industry, which would drive down the cost of house building. Now that would be innovation.”

For the majority, the investment in skills and training simply doesn’t match the scale of the problem, especially as workers of the EU threaten to down tools.

“While encouraging to see that the Chancellor has acknowledged the need to invest significantly in training new construction workers, the government needs to realise the scale of the problem particularly given the uncertainty around the availability of European workers following Brexit,” said Parul Scampion, COO at Fruition Properties.

Hammond also courted criticism by calling for high density homes around city centres and transport hubs, and pledging to protect the Green Belt.

CLA President Tim Breitmeyer said, “We need more homes of all types across the whole country. It is worrying for a Chancellor to be so explicit in describing a policy so completely focused on urban areas. The shortage of homes in rural communities is no less acute than in our towns and cities. Rural landowners stand ready and able to play their part in delivering the homes people need. Another budget has gone by without making simple changes to tax and planning policy that could make a big difference.”

The announcements that five new garden towns will be delivered via private-public partnerships, and that 1 million new homes will be built on the Cambridge-Milton Keynes-Oxford corridor by 2050, were received more positively.

“At the core of delivering the homes we desperately need has to be a real partnership between private house builders, housing associations, local councils and national government – all pulling together and all delivering their best,” said Sweeney. “The Chancellor’s pledge to support plans to build 100,000 new homes in Oxfordshire by 2031 is progress, but I’m not sure we’re there yet.”

Neither, it seems, is anyone else.

PHOTO CREDIT: U.S. Embassy London

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