Overcoming obstacles to deliver housing in the UK

Adam Williams
The UK is failing to meet its annual target of building 300,000 homes by some margin and there remains a shortage of homes for an increasing population. The issue continues to feature highly on the political agenda to the extent the government commissioned an independent report to investigate how to close the gap between houses that are built, compared to those that are allocated planning permissions.

So, what are the obstacles affecting the delivery of housing in the UK?

It is a multifaceted issue but two of the main issues include bureaucracy of the planning system and land banking by housing developers, which have both been cited as preventing supply from keeping up with the pace of demand.

The core component in the construction of new homes is land and ultimately its availability and residue value. It is undoubtedly one of the most lucrative commodities.

Logic suggests that when house developers purchase land, their business model is simply to make a return on capital. Having spent significant sums buying a site it is reasonable to assume they need to construct homes rapidly to seek a return on their investment. The reality however is often not as straightforward.

Housing markets are highly localised, with new sales dependent on the number of potential buyers in a given area. On the premise to increase sales rates, housebuilders need to sell into the market at a lower price than envisaged when purchasing a site. By saturating the local market this serves to reduce profitability, potentially damaging the original investment. So, if housebuilders construct homes at a pace 'designed to protect their profits' is it any wonder that government targets are being missed?

On the contrary, critics point to the planning system being too restrictive and time consuming. Unlocking a potential site for residential housing is complex, but evidence suggests applications are at record highs. Delays relating to discharging pre-commencement conditions, compliance with Section 106 and Community Infrastructure Levy obligations (in England and Wales) are just some factors influencing this. Given the pressure to avoid constructing on green belts, developers are increasingly working on brown field sites that require significant upfront remediation costs and lengthy enabling works.

In years of austerity, local authorities have made staff cuts so it is conceivable authorities are slow in processing large applications. This bureaucracy within the planning system takes time but serves a valuable purpose in protecting green space and acting in the public interest. But even if regulations and red tape were eased, there remains limited incentive for landowners to sell at a faster rate than they currently do as it would likely impact the price they achieve for their land.

Often overlooked is whether housebuilders can source the skilled labour to keep up with demand. The well-publicised UK ‘skills gap’ will likely be compounded by any ramifications of Brexit. Reports predict Brexit may result in the potential loss of 10% of the housebuilding workforce (25% in London).

More locally and as one of the UK’s fastest growing cities, Cardiff Council has set ambitious housing targets to meet the anticipated population swell. Sitting at the heart of this is the city’s Local Development Plan (LDP 2006- 2026) which demands the need for more than 41,400 homes to be built by 2026, requiring the construction of 2,070 properties per year for the next eight years. In Cardiff’s case, large scale housing developments are well under way, but this perhaps does not reflect the wider UK picture.

Housing developers are often the easy target, but should the onus be put on central government to offer increased funding to initiatives like the Land Assembly Fund? This initial £1.3bn fund is used by Homes England to unlock uneconomic sites for housing developments effectively stepping in where the market is not working and releasing sites to local authorities. The fund intends to resolve issues on potential sites such as contamination, a lack of infrastructure and landownership disputes that would ordinarily not be viable sites for developers to take forward.

In contrast, should more emphasis be made to shake the system through the implementation of a Vacant Land Tax. This proposal would encourage developers to take forward sites that have stalled. This would aim to discourage developers speculatively accumulating plots a practice what some argue is becoming increasingly prevalent. This tax has been implemented in the Republic of Ireland and has recently been discussed in the Welsh Assembly.

Perhaps such a tax will have little impact on major house builders. The headline finding of Sir Oliver Letwin’s ‘Review into Build Out Rates’ was that there is ‘no evidence that speculative land banking is part of the business model for major house builders, nor that this is a driver of slow build out rates.’

The fact remains that the UK house building sector is dominated by a few large companies who agree that they cannot on their own build the numbers of homes the country needs and they are constrained by market absorption rates. Therefore, the government must turn on all the taps, to encourage a greater mix of tenures and new entrants into the market.

Sir Oliver’s report highlights that we cannot rely on homes for sale at market prices to solve the housing crisis; we need affordable homes, homes to rent and homes that suit the lifestyles of city centre living young professionals as well as those at the other end of the market who want to downsize, freeing up much-needed capacity for young families.

If the report’s recommendations are to stand any chance of success, the government and local authority leaders must boost their planning teams with additional resources, in terms of manpower, skill sets and innovation.

The government has promised to consider the findings in early 2019 so whether this will be the catalyst for change it is yet to be seen but without a change of strategy we will likely see a continuation of the status quo.