Housebuilding: In the balance

I am frequently asked whether the plethora of government initiatives announced in support of housing will result in the wider housebuilding industry doubling its output to 250,000 homes per annum by the end of this parliament. I fear the answer will be no. Not for the lack of trying. In fact, delivery increased 25% last year, but, as those at the coalface will realise, support for one market sector often disturbs the equilibrium elsewhere or creates another problem. Indeed, if the answers were straightforward, we wouldn’t be where we are.

I attended meetings with senior officials earlier this month to assess the potential impact of the government’s most recent announcements designed to re-energise estate renewal through the application of £140m targeted at 100 of the more needy estates. There is undoubtedly room for significant additional delivery through successful estate renewal as well as the welcome opportunity to improve living standards for those who find themselves living in ill conceived, deprived communities. This is a specialist area of development however, reserved for the experienced and committed. Having successfully undertaken two such schemes in the last 10 years the team at Crest Nicholson recognises only too well the scale of the inherent challenges.

Experience brings opportunity and having assessed the deliverability of many such sites over the years they are all severely challenged in viability and cashflow terms and have traditionally required 30 to 50 times more funding than the latest commitments (Park Central in Birmingham, for example, was kickstarted by a £53m European grant). In my experience however, the greatest impediment to estate renewal is the previous extent and popularity of successive right to buy initiatives. With sometimes as many as one-in-three estate homes already in private ownership, the resulting cost of land assembly and / or re-provision is simply prohibitive. The current round of right to buy, while potentially helping to fund more housing and drive more delivery, is only likely to compound this problem further, with the net result that estate renewal will not readily contribute further net housing within the lifetime of this government.

There remains a risk that in parts of the country the Starter Homes policy will get bogged down in a difference of opinion between central and local government as to what constitutes affordable housing

In a similar vein it remains unclear whether the Starter Homes initiative will result in an additional 200,000 net homes by 2020, or simply displace traditionally funded affordable homes and first-time buyer acquisitions under existing Help to Buy funding. Our own assessment is that the policy has the potential to stimulate additional delivery, but there are many local authorities who have not welcomed this new form of subsidised housing, believing that it doesn’t deliver truly affordable housing. There remains a risk that in parts of the country the Starter Homes policy will get bogged down in a difference of opinion between central and local government as to what constitutes affordable housing and how it meets local housing need.

Having committed to working in partnership with various funds on larger urban and suburban developments, to deliver institutional Build to Rent at scale, there is an undoubted growing nervousness within parts of the investor community about the combined effect Help to Buy and Starter Homes will have on the attractiveness of Build to Rent to “generation rent”. This may be an overt political objective but it risks undermining the confidence of a growing but fragile market sector.

Likewise, the loss of tax breaks and the impending application of increased Stamp Duty Land Tax upon incidental Buy to Let landlords will undoubtedly have the effect of slowing urban regeneration, particularly in the regions. The impact of these policies on the 25% to 30% of our apartment sales to Buy to Let landlords in urban schemes outside of London will undoubtedly slow down the sales rate on these high volume inner city sites. This in turn will result in a lowering of delivery rates on more vulnerable schemes.

While London is a market that has seen excessive Buy to Let investment in recent years, this is not necessarily a problem outside of London and it is not the case that there is a queue of owner-occupiers being displaced by such investors. Again the promise of policies designed to stimulate delivery, when considered in the light of the counter policies designed to reduce demand in other market sectors, can cancel each other out.

It would be churlish to suggest that a doubling of the housing budget to more than £20bn over the next five years will not increase delivery. At Crest Nicholson for example, we continue to target a challenging growth pattern back to 4,000 dwellings per annum by 2019 (compared with 2,720 in 2015). Nevertheless, the rate and extent of change in itself can create a measure of inertia and have unintended consequences for deliverability, market demand and therefore the ultimate level of supply.

Chris Tinker is executive board director and regeneration chairman at Crest Nicholson