Following on from the Budget statement, chancellor George Osborne handed the house building industry another big shock with a complete reworking of planning permissions for housing sites.
This was big stuff – a veritable tearing up of the form book with “automatic” permissions now on offer through zone-style planning – with a commensurate spike in housing delivery seemingly just an industry’s effort away.
Except it won’t work. Not even close.
I’m trying to conjure up a metaphor and have settled on a motorway traffic jam. What government policies offer as an equivalent solution for the housing crisis is to increase the speed limit. However, with the road ahead already full, higher potential speeds are not going to get anyone from A to B more quickly. The only genuine solution is to add more lanes to get the necessary increase in throughput.
Belaboured metaphor aside, the simple truth is that the industry does not have the capacity to deliver 200,000-plus homes a year.
Empty statements of a lack of desire from the PLCs completely miss the point. To double production we need a legion of new construction workers and a corresponding increase in the available materials, right across the supply chain. Build cost inflation of 6-8% says that capacity is simply not available in the supply chain as it is. We need to do something different.
So now what? The coalition government’s efforts to stimulate housing demand as a response to the downturn were given further refinement post-election by the new “government of home ownership”. But, failure to address the other half of the equation – supply capacity – has meant that even tearing up a large section of planning policy will make little difference to the number of homes that are constructed this year, next year, or over the period of this parliament.
JLL forecasts that on the present trajectory close to 170,000 homes will be built in 2019, only 30,000 more than in 2014. This makes uncomfortable reading for many, but the focus needs to shift to longer-term support for modern construction methods and an expanded programme of construction apprenticeships.
We need to make the delivery of housing a less risky proposition by improving the opportunities for long-term, institutional capital to gain a foothold. There is clearly a role being taking up by PRS investment, but not enough is being done to enable private investment in affordable housing.
This may sound rich in the context of huge profits from the national house builders, but it is not all that long ago that the sector was on its knees. The point is, we need to de-risk delivery using a greater proportion of long-term capital that will help reduce this volatility.
The barriers to entry for the industry are high and the risks are great. This has bred a sector that is over-reliant on too few organisations for delivery and a focus on margin protection rather than volume. To reverse this, long-term money into the likes of PRS will support activity that is better insulated from market cycles. It also needs to be easier for SMEs to enter the market, driving up competition and supply across smaller development sites. Alongside meaningful support for affordable housing – not just grant, there is plenty of private capital willing to do the job – these measures should ensure future market recoveries are shorter and less severe next time.
We are in one of the most supportive policy environments for housing delivery in living memory and the creation of zoning-style planning will improve the supply of development land. It should be expected that further support will come with strings attached; section 106, community infrastructure levy, proportions of intermediate rent/ownership and starter homes are but a few of the obvious suspects.
Of course, the shifting sands of policy is itself a risk that is often overlooked, and nearly five years of relative certainty over the direction of travel is a fillip to investment and activity.
In the meantime, I’ll keep working on that metaphor.
Adam Challis is head of residential research at JLL
