According to the IMF, the UK is expected to be the only country across all the advanced and emerging economies to shrink this year, contracting by 0.6%. High energy prices, the rising cost of mortgages, increased taxes, persistent worker shortages and stagnant productivity levels are setting the UK back.
But beyond the near-term implications of a protracted economic recession for consumers and businesses, what does weaker economic growth mean for the UK’s beleaguered housing market? What will be the short-term and the longer-term implications of the UK’s lack of productivity growth?
I believe the most serious yet less instantly visible impact of a deep and somehow protracted recession of the economy like the one the IMF predicts is on housing supply in an already undersupplied market. At a time when chronic housing shortage is one of the biggest challenges the UK faces, the credit tightening faced by property developers is a silent threat to the long-term supply of affordable housing.
According to government housing supply indicators, there were 194,063 new built dwellings completed in 2020-21, down by 9.5% from 2018-2019 and by 11% from 2019-2020 and well below successive governments’ long-predicated but recently dropped target of 300,000 new houses per year.
Over the past decade, an average of 162k new dwellings have been completed each year across the UK, with pretty much no growth at all in annual completions despite housing supply being often cited as one of the most significant challenges of our times. Of course, lack of funding remains a key difficulty. A survey of almost 200 SME home builders across England and Wales carried out by the Home Builder’s Federation revealed that access to finance remains one of the main barriers to housing delivery, even though stark regional differences exist.
18% of respondents in the North and 24% of respondents in the Midlands saw development finance as a major obstacle, as compared to just 3% of respondents in the South. Sadly, many small and medium-sized housebuilders see access to development finance as a challenge that is preventing them from reaching their ambitions for growth and threatening the existence of some. Others see it as a dark art that’s difficult to untangle for those developers not large enough to have their own Head of Finance and who must rely on intermediaries.
So, amid an already challenging funding environment, the headwinds depicted in the IMF’s latest Economic Outlook don’t bode well for housing construction output, especially for SME housebuilders.
Even before the IMF report was published, the Construction Products Association (CPA) had warned in its Autumn Construction Forecasts last November that construction output is expected to fall by 3.9% this year, a sharp downward revision from -0.4% in the Lower Scenario of the CPA’s Summer 2020 Forecasts, which the CPA said was due to the impact of a wider economic recession intensified by last September’s ‘Mini Budget’ effect and the consequent fallout from last year’s political turmoil.
Government and industry must act now to support the housebuilding sector in a bid to ensure quality and affordability for UK tenants and renters over the next decade. We are excited about some of the planning reforms expected to come through this year such as brownfield land being prioritised for development and the government launching a review into how such sites are used.
Well-capitalised, agile, and flexible specialist development finance lenders like us at Blend are in a strong position, keen and ready to support small and medium-sized housebuilders who need accessing finance to continue building the houses the country needs to ensure we reverse the housing shortage.
