Summary: The Brexit vote has slowed momentum in the housing market. However, demand has not diminished. A number of recent reports (Government sponsored or otherwise) has highlighted the need to have a re-examination of our current approach to housebuilding. The latest of these was published on 15th July and originated from a cross party House of Lords Committee. Perhaps it is now time for a real re-think?
The 15 July saw the publication of another report pointing to the need for the Government to re-evaluate its approach to housing supply. This time it was the turn of the House of Lords Select Committee on Economic Affairs and its report “Building More Homes”. In coming to the underlying conclusion that the current model is just not working it focuses on the robustness of current Government housing targets, local authority building, building on public land, planning reform and the use of existing stock. Many of the conclusions and recommendations echo those which came out of the London Housing Commission chaired by Lord Kerslake. It is suggested that these recommendations could or should be given more impetus in the light of the Brexit vote. Even if the share values of housebuilders recover, the appetite for major new development is less likely to in the short to medium term.
The report casts doubt on the Government’s current target of 200,000 houses per year or (1m homes by 2020) as being enough, suggesting instead a more robust figure of 300,000. Further it goes on to say that to achieve even its target, the Government must recognise the inability of the private sector, as currently incentivised, to build the number of houses needed. It suggest that Government action is needed to address this particularly support for local authority and housing association building (involving the lifting of the local authority borrowing ceiling and reversing social rent cuts), more effective approach to building on public land and the right sort of planning incentives being put in place (including the right of local authorities to set and vary planning fees and the right to levy council tax on developments not completed within a set time period).
For the volume of homes to increase significantly it is suggested that alternative means of provision must be developed to a much greater extent to work alongside the existing housebuilding industry. Such alternatives should include direct commissioning, support for small and medium sized house building businesses and increasing significantly partnerships between public sector land and private sector finance (alongside some public sector intervention finance if needed). The crux is the optimum use of public sector land and putting in place de-risking structures to incentivise the financing of building.
The Government is already piloting direct commissioning of “affordable homes” on 5 sites. The aim is for the public sector to de-risk elements of the development process to encourage, in particular, small and medium sized housebuilders who lack the resources and access to land. The report welcomed direct commissioning but concluded that it should be a much bigger part of the housebuilding programme.
Small and medium sized housebuilders, in addition to access to land, would also be incentivised through access to finance. The HCA already has one of its recoverable housing investment programmes, Builders Finance Fund, focussed on medium sized house builders (although it is the size of the development (5-250 units) that is the principal criterion for funding rather than size of business). This approach could be extended to focus on both size of business and site by making available government guarantees for funding arranged through an aggregator or intermediary body. However, careful consideration would need to be given to development risk as thusfar guarantees have only been made available in relation to infrastructure and affordable housing, both of which have a different risk profile and tangible long term revenue streams.
Finally, it is accepted in most if not all quarters that there needs to be greater incentive in the release of public sector land. The Report suggests as one of its recommendations that the Government should have a greater oversight of the number of homes actually built, potentially giving a Cabinet Minister specific responsibility and/or bringing such within the remit of the National Infrastructure Commission (the latter would also reinforce the notion that housing should be classified as infrastructure for national planning purposes).
However in addition, it is important that the public sector should have the right skills available to harness on a local and or regional basis across the country both surplus public sector land and private finance. This is particularly relevant to finding the right delivery solution taking into account current innovative techniques for example, using public sector land as an investment tool and so foregoing an upfront capital receipt. Ways of encouraging Housing Association involvement should also be sought.
This could be achieved at a minimum cost by pulling together, and where necessary adding to existing skills. The Mayor of London is proposing Homes for Londoners based on such a concept. However, it is suggested that a primary focus should be on matching alternative sources of finance (institutional and other finance that is now available for housing) with surplus public sector land. Individual projects could be aggregated, stress tested and if necessary de-risked either by using Government recoverable investment or Government guarantees. However, the importance is to achieve scale.