So here we are. No clue on the day, week or potentially the month. I think on writing this I am now day 57 with just a daily walk and a weekly trip to the shops. Needless to say the grass in the garden has seen better days but at least the flowers are blossoming! Thankfully I do a job which can be done remotely (although clearly missing the regular human interaction).
There has been a significant reduction in the number of new homes built by small house builders and developers over the last decade. There is a widespread understanding that this is a problem however to achieve a reversal of fortunes there needs to be a clear understanding of the obstacles in the way for those who want to increase their output. The key challenges are:
- The planning process;
- The availability and cost of viable land; and
- The availability of finance.
Sadly in March 2020 Covid-19 arrived and shifted focus away from the bigger issues and more on what next!
With the news of housing starting back up – there is a question as to what might need to happen to stimulate the market. The resilience of the sector has really been tested over the past few weeks. Housing is key to our lives and our economy so we all really need it back up and running. The ability to continue selling houses while in lockdown has helped but clearly transaction levels are done and even though sites are reopening, it would be omiss to assume that activity levels will remain the same via social distancing measures along with fragility of the supply chain.
The industry has shown some heart with an initial focus on the safety of people and now it’s still on people but also actions to try and return to normality – without transactional activity happening there is the risk of businesses being unable to continue to operate. There has been a level of Government support through a wide range of measures provided and now the key is what next?
Firstly what next for the market? I’m no economist and therefore look to others to provide guidance like our Chief Economist at PwC ( UK Economic Update: COVID-19 ) or recent guidance in April 2020 by Savills which predicts a short term fall or 5-10% ( UK Housing Market Update – April 2020 ) – whichever your source, it’s same to assume there is uncertainty ahead. If you translate this to a housing organisation – the key will be preservation of cash, stress testing the business and looking at construction activity to maximise the use of the cash you do have available. Let us not forget though that unlike 2008, larger housing is much better financially positioned and to date the banks have not shut down. However SMEs will now face a financial impact coupled with a public health challenge.
So what to do? Well if we focus on the hardest hit, the SMEs. Funding to help recapitalise a business and meet the working capital demands of construction would be beneficial. Organisations like Homes England could also support via funding / acquiring sites to promote SME development which tends to allow smaller sites to be brought forward. Indirect funding that will also benefit the sector is Help to Buy – an extension and support for mortgages would instil confidence in consumers. This would then create the further challenge of weaning us off these measures at a later date.
The planning system – with 2019 came Brexit and an election (or two) which didn’t help a system that was already struggling. Changing councils meant new priorities and ultimately delay. The planning process has been criticised for taking too long, costing too much and being unpredictable. Any actions to impact just one of these for the better will be beneficial. A streamlined process which still delivers on detail but significantly reduces the time (via less ‘red tape’). For the affordable sector, it would be beneficial if the public benefit of affordable housing was strongly used in judgments. Looking at tenures being offered in an application and really considering the wider benefit both to the area and to the economy would also be useful.
As above, Government linked organisations could use their financial power to provide loans to kick start funding or acquire sites to help reduce the cost burden. The benefit of bringing in another party, say Homes England, would support a wide range of parties – and the underlying subcontractors and other benefactors of a housing development. Given the cost and availability of land is a key challenge for SMEs, support will help and it will benefit the lack of finance available to smaller housebuilders. In terms of the wider outputs from planning, with a limit on cash flows at the moment could S106 obligations be phased out to reduce the cash impact.
Infrastructure, to support wider development, is an opportunity for public and private to work collaboratively on. Think about regeneration of an area – before housing, has due thought been given to school, transport network and other services. The public sector should take the lead here but only to do what it can. The private sector can then support on top. Working together in true partnership to benefit the communities being created.
The supply chain will be key in reviving UK housing. Just like housebuilders, the supply chain (subcontractors and many more) are fragile and have been through the same disruption. There has been some really good examples of how businesses have supported their subcontractors and relationships have really been utilised (and also tested). Working alongside the supply chain now will allow for the sector to get back up and running as quickly as possible. Some advice on working with your suppliers is contained here: Post-lockdown planning with suppliers
The key is working together – both public and private. This virus has caused disruption most of us have never seen before (and potentially never will see again) and therefore it is key to get through this together. This is from suppliers and subcontractors up to national housebuilders. We’re all in this together. By making the right decisions for the communities that exist now and thoise we are creating for the future we can come out of this better than we came in and get housing really functioning for the better!
Words of Wilko 