There needs to be a paradigm shift in the way that housebuilder’s approach the issues symptomatic of today’s challenging housing market, writes Jonathon Bentley, but government must do its bit too
There is no doubt that we’re living through turbulent times.
The combination of the latent effects of the coronavirus pandemic, and the material challenges created by the war in Ukraine have combined with a tumultuous economic climate, brought on in part by last September’s mini-budget, but for which the seeds have been sown for a while.
The effect this has had on the housing market has been significant and – potentially – long-lasting. Our role in the land development cycle means that we work with the different players in every stage of the process, and have an early stage understanding of the market.
When you look at the kind of volume housebuilding this country needs to alleviate the current housing crisis, the challenges faced are numerous.
Over the past year, there has been a noticeable decline in the number of housebuilders we are seeing tendering for land that we are involved in the process for, and even deals that have already been lined up are undergoing increased scrutiny as wallets get a little tighter.
This reticence to make big investments while the market is still unstable is nothing new, but while the current delays are a frustration, the bigger problem is what their knock-on effect will be once the economic situation does stabilise.
Once inflation quells and interest rates begin to drop – typically signifying that demand for buying houses will rise – those looking to make their next move will find that the supply is just not there, having been constrained by months upon months of uncertainty.
This is damaging in the short-term, but even more problematic in the long term. The housebuilders scrambling to find the land they need will find that the kind of large strategic sites that are accounted for in local plans aren’t available, meaning that in the search for quick wins, they will look at smaller, piecemeal developments, pepper-potted in areas that don’t have the associated infrastructure to cope with the new demand.
The best laid plans
While it is clear that the planning system isn’t helping matters, there is a prevailing view that this is largely a capacity issue. It is certainly the case that planning departments are as understaffed now as they have been in my two decades working in this industry, but the starkest issue at the moment is the inertia that has been caused by the delays in announcing the latest update to the National Planning Policy Framework (NPPF) guidelines.
There’s a multitude of potential reasons for the delay, but what it has created is a “wait and see” attitude within local authorities. Any examinations or rethinks of local plans are being paused while officers wait on the new guidelines, while any large sites that are currently in the planning process are having their determinations delayed as the local authority awaits the impact of the changes before making any decisions.
Even when the guidelines arrive, it isn’t simply going to be a case that the logjam will ease immediately. Not only will it take the planning departments time to absorb and adjust, but also the developer and/or promoter of the land will need to make their own decisions on whether any changes that come about from the guidance mean that their margins on the project will be affected, and – potentially – whether it is viable at all.
Another major factor preventing the UK from delivering large-scale housing effectively is that housebuilders are not fully equipped to fulfil the role of master developer due to lack of up-front funding.
While it isn’t the case with the 35,000 new homes our clients are currently responsible for, we’ve typically found that the significant cost that comes with the infrastructure needs of major urban extensions can be off-putting and acts as a barrier to housebuilders taking on this sort of project.
There is a high level of risk associated with this element of a scheme, and the return on investment lacks the immediacy of other smaller scale projects with lesser requirements.
However, this creates a huge obstacle to delivering these large urban extensions that needs to be navigated. While it’s true that the planning system needs a rethink, it is a false perception that this is the only stumbling block.
There are significant numbers of these urban extension projects that have been given planning consent, but the combination of limited funding, a lack of appetite for developing out the infrastructure needed to support them, and the timescales involved in doing so, is standing in the way of progress.
Big picture thinking
Whether it’s the financial gymnastics required, or the constraints of the current planning system, housebuilders are finding themselves more inclined to deliver those small-scale schemes that can deliver a good return on investment fairly quickly.
However, when it comes to the kind of major projects that we as a country need to hit housebuilding targets, the related infrastructure – and the upfront funding that is required – strangles the speed of development.
To make any land ready for housing, there is a significant amount of infrastructure work required before it is primed for development. At the moment, this is simply not being made accessible, meaning that existing master developers or local authorities are having to cover these extensive costs upfront.
What this leads to is a problem balancing the development cash-flow that ensures a scheme can progress to the next phase, as large amounts of capital are exhausted before the first brick is laid. For housebuilders that typically rely on a business model that limits risk, this kind of upfront investment is very off-putting.
We recently spoke with Michael Gove MP, secretary of state for levelling up, housing and communities, at a new sustainable urban extension at New Lubbesthorpe, Leicestershire, which we’ve been involved in for more than a decade.
Following our discussion, it was clear that Mr Gove really understood the difference between what a master developer does in the way of servicing the land ready for houses to be built on, in contrast to the more traditional role of a housebuilder.
There now needs to be a concerted effort from those in government to investigate how large scale, sustainable urban housing developments can be rolled out across the country.
More funding needs to be made available to get major urban extensions ‘shovel-ready’. If this can be done, we will see more housebuilders in a position where they can purchase fully serviced parcels of land and therefore build more, much-needed housing.
Jonathon Bentley is managing director of construction consultancy, Bentley
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