What the government needs to do to avoid another housebuilding collapse

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With a deeply entrenched housing crisis, building rates must make a stronger recovery post-coronavirus than after the 2008 economic crash. Joseph Daniels, founder of offsite eco-developer Project Etopia, says the modular and SME sectors stand ready, but they will need government support to avoid another “lost decade”

With coronavirus weighing heavily on every section of the UK economy, the property industry is suffering like many others. Britain has by and large stopped building houses. As yet, we have received no clear signal about when things might return to ‘normal’, keeping us locked in this stalemate for weeks, if not months.

As an industry, we must look ahead to the days when building can rise again. The property industry is a vital cog in the economy’s machinery and, though we’ve heard a great deal from the Chancellor about support for small businesses and furloughed individuals, there has yet been no scheme announced that is specifically directed at the housebuilding industry.

This is inevitable while the country is in the teeth of the pandemic but the government will need to turn its attention to supporting housebuilders soon if we are to avoid a slowdown of the kind seen after the financial crisis. Britain will need a collective effort to reach the building levels achieved at the start of the year – and go well beyond them.

Bouncing back quickly

We can draw on our experience of the last financial crash, just over a decade ago, to identify the solutions needed.

During the last major economic downturn, starts on new homes fell to their lowest rate since records began in 1978. The biggest decline was recorded in the final quarter of 2008, when just 21,940 homes were started, representing a 58% drop from the same period the year before when the figure was 52,860.

It took until September 2016 for starts on new builds to again hit 50,000 in a quarter, and it was not until two years after this that starts finally got back to their quarterly pre-crisis peak of 52,860, set during one quarter of 2007.

The UK already faced a substantial housing deficit before coronavirus, and it looks likely that new starts will hit a new record low in this quarter of 2020 (Q2). What is critical this time is that we bounce back better than we did 12 years ago, after which the global economy, and housebuilding in Britain, suffered a lost decade.

There are some factors in our favour which did not exist last time around. For a start, we can count on support from the banks, who are still lending, underpinned by the various government business grants and loan schemes created in response to this crisis. But there are other ways the government can help developers when the lockdown starts to ease.

SME builders

The government should first look to support SME builders. Historically, SMEs have played a vital role in housebuilding, and before 1990 they were responsible for 39% of all new UK homes.

Yet SME builders suffered the most from the last economic downturn – in 2017, these companies were still producing fewer homes than during the depths of the 2008-09 recession.

The fear is that they will suffer greatly again this time, meaning housing delivery would need to come from an even smaller pool of developers. This will not be sufficient to bring housebuilding up to the levels reached at the start of 2020, let alone go above and beyond those rates to reach housing targets.

The government has already recognised SMEs’ important role in accelerating housebuilding. Earlier this year then-housing secretary Robert Jenrick announced a £1bn guarantee scheme to ensure enough credit is available to allow smaller housebuilders to enter the market.

This is an example of a government-backed scheme already in action, and one which can be expanded to offer an even larger guarantee. The arrangements with the banking sector are already in place, and a further financial commitment could be the injection of capital SME builders need to get the ball rolling on their developments.

A similar intervention could be made for offsite builders. We have in recent years seen the re-emergence of offsite construction, with high-quality homes that can be constructed in a short space of time. The coronavirus crisis has drawn numerous parallels with the Second World War. Modular housing was the answer then and offsite construction can be again – though this time the technology is so far advanced, that homes will have the longevity to withstand the rigours of modern living and be fit for the future too.

Supporting offsite methods through even more generous guarantees for development loans will ensure new housing starts – and completions – begin growing rapidly, as soon as possible.

Land for building

Homes England has a vital role to play here, and has said it is reaching out to the industry to establish what the sector needs before it comes forward with any proposals of support.

In all likelihood, it will need to expand its role as a land developer, taking possession of stalled projects, and passing on land to developers with the capacity to start building.

Local authorities too can play a role. The government should be more strident in how it encourages councils to free up brownfield sites for development, and this could include a new charging regime for owners of private, vacant brownfield land. Most local authorities already have a plan in place for how housing will be distributed over the next five to 10 years, and will already have identified prime brownfield sites it would like to see developed for housing.

There should also be incentives for local authorities to unlock smaller parcels of land which may not suit larger developers but can be the bread and butter for SME developers. Prioritising planning decisions on housebuilding developments big and small will also go a long way to help.

No easy answers

No doubt there are no easy answers for any of us at the moment, and government support has already gone a long way to help all companies in the short term. But the UK cannot afford for building rates to drop off for the whole year, when the housing crisis is so deeply entrenched.

By freeing up land, speeding up planning and getting SMEs building in greater numbers again, we should hopefully see many new homes rising out of the ground far quicker than we did during the financial crash just over 10 years ago.

 

Joseph Daniels

Founder and CEO

Project Etopia

www.projectetopia.com

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