Why the government must not forget about new build

Craig Hall, Director at LSL New Homes Financial Services, looks at how the new build industry can plan for the future amid current uncertainty in the market.

Related topics:  Government,  New Build
Craig Hall | LSL New Homes Financial Servicesporter
25th July 2023
Craig Hall
"While clearly the quality and safety of new housing is paramount, the Government needs to recognise that the current bottleneck in planning for new residential developments is just as serious an issue"

In May 2023, a government report on tackling the under-supply of housing in England highlighted the need for more good quality and affordable homes. Clearly, the housebuilding sector is crucial to supporting this goal, and to delivering more broadly on the 300,000 homes a year target which was previously been put in place by the Conservative government.

Beyond this, the housebuilding sector plays a much broader role in driving economic growth in the UK – something clearly laid out in a 2018 report by Lichfields and the Home Builders Federation. The report highlighted that house building generates £38 billion of economic output each year, with nearly 700,000 jobs created by the industry.

While these statistics are now five years old, the sheer volume of goods, services and materials involved in building a house is unchanged and is the reason why housebuilding should remain a priority for any government. Given this, I would like to highlight some of the obstacles the new build industry faces at the moment, and how the Government can help support this vital driver of the UK economy.

Fail to plan, plan to fail

On the 6th of July, a number of key housebuilding representatives hand-delivered a letter to Rishi Sunak, signed by 166 SME housebuilders, arguing that the planning process had never been more difficult for SMEs and that the Government’s present and proposed planning policies were devastating the industry. This is not the first time developers, and particularly SMEs, have expressed frustration with the current system.

A survey carried out by the HBF in March also found that 93% of SME developers believed that securing and processing planning permission to the point where construction work could start was a key barrier to growth. These concerns are reflected in the figures too.

The latest official figures show that the number of new homes developments granted planning permission in England has fallen to its lowest level since the 2008 financial crisis. These figures are a direct result of the decision by the government in December 2022 to increase planning restrictions.

Pollution problems

Housebuilders are facing other roadblocks in the planning process too. A European Court of Justice ruling in 2018 meant that Natural England updated its advice on nutrient neutrality. Local authorities must now undertake an appropriate assessment of all applications for housing development to guard against nutrient-related pollution.

This additional requirement has meant that an estimated 145,000 new homes across 74 local authorities are being delayed, further hampering housebuilders' ability to increase supply.

While clearly the quality and safety of new housing is paramount, the Government needs to recognise that the current bottleneck in planning for new residential developments is just as serious an issue and one which could affect housing supply for years to come if it is not resolved.

Housebuilders are willing to engage with the Government to try and meet their significant annual target for new dwellings, and planning seems like a very good place to start. At the same time, the current advice from Natural England in regard to nutrient neutrality is clearly causing critical delays in the planning process. A new way forward must be found to both meet environmental standards, but also reduce the impact on the delivery of new homes in the future.

Demand struggles

Dominating headlines in 2023 have been the volatility of the mortgage market. Rising interest rates and the cost-of-living crisis have made affordability a central concern for borrowers and lenders alike while slowing growth in house prices has increased the hesitancy with which consumers are approaching the housing market.

First-time buyers, who form a large part of the demand for new build homes, have been hit particularly hard by the current economic environment. Problems have been compounded by the end of the hugely successful Help to Buy scheme earlier this year, for which there has been no equivalent replacement. Given higher interest rates are likely to stay for the foreseeable future, it is important that the government provides some clarity on their long-term strategy to support those looking to take their first step onto the housing ladder.

There are a number of existing public and private schemes that have the potential to fill part of the gap left by Help to Buy, but the Government needs to collaborate with the housing and mortgage sector to work out how to encourage and facilitate their more widespread use.

To start with, this means greater certainty over the First Homes Scheme. Although the Government has made it clear that this scheme is here to stay, there has been little that has been said about the intended scale over the next five years. More details on the scheme will need to be shared for a greater number of lenders to sign up.

The Government should also place an emphasis on encouraging the development of more Shared Ownership properties and increasing engagement with the scheme. There is more demand for Shared Ownership than ever before, with more than 10 buyers for every Shared Ownership unit, and the scheme has proved to be an effective way of getting first-time buyers a foothold on the housing ladder.

Schemes focused on supporting borrowers with a deposit, such as Deposit Unlock, can also play an important role in alleviating some of the financial pressures facing potential homebuyers. However, currently, affordability remains the key challenge and is the issue that needs addressing most urgently.

While this is the case, the Government has not completely ruled out the possibility of bringing back the Help to Buy scheme in a new form. However, it is essential that the Government recognises that the new build sector forms a critical part of both the UK housing market and the country’s economy more broadly. As a result, they need to address issues in the market to drive future growth and stability in the sector.

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