Inside Housing surveyed 104 affordable housing developers and gathered a group of experts to check the vital signs of UK house building. Keith Cooper reports.
Back in those halcyon days of the noughties there seemed much reason to be optimistic about the health of the house building industry in the UK. The number of new homes peaked in 2007 at a reasonably robust 226,000 - the highest figure since 1981.
Housing associations in England were delivering them with a relatively generous £8.4 billion shot of adrenaline from the government. How times have changed.
The financial crisis and recession have helped halve both the housing budget and build rates. Just 116,000 homes arrived on the UK landscape in 2011. The English affordable housing pot has been topped up by the Treasury to a meagre £4.5 billion.
Affordable housing developers are, however, doing everything they can to return to full fitness, despite being beset by budget cuts, a host of radical reforms and a tough eco target to boot. Associations must now cope with a funding regime which expects them to pay for development with more rental income and less government subsidy.
They must also navigate new planning rules, in the guise of the English national planning policy framework, while ensuring all development meets a difficult zero carbon target by 2016.
So how are affordable housing developers faring in today’s debilitating economic conditions? Are the government’s reforms going to kill or cure? And what are the chances of a return to the healthy house building figures of the noughties? To answer these questions Inside Housing, in partnership with aircrete manufacturer H+H, conducted an online survey of 104 affordable housing developers, then convened a panel of industry experts in a London hotel to discuss the findings.
The overall prognosis is poor. A significant minority of survey respondents are downbeat about the restorative potential of the government’s reforms in England. Just 31 per cent say the national planning policy framework will result in more homes being built; the majority - 47 per cent - think it will have no effect.
‘Not in the short term,’ one respondent comments, ‘it will take time for new policies to bed in.’ Another warns it is ‘too early to tell’ whether the policy would boost house building. Several point out that there are other, more significant, factors preventing homes being built. ‘I don’t think planning is the problem in our area, but market confidence [is],’ states one respondent.
Those taking part in our survey are even more despondent about the potential of the new homes bonus scheme to accelerate development. Under this incentive, the government rewards local authorities with the equivalent of council tax payments for each new house they build or empty property brought back into use. A thumping 77 per cent say it would make ‘no difference’ to their ability to build new homes. Just 11 per cent credit the bonus with an increase in build rates.
Several respondents report that councils are stuffing the bonus income into their much-depleted general funds instead of using it to create extra development - a finding borne out by detailed research carried out by Inside Housing in January. ‘The NHB does not appear to be applied toward affordable housing within any [local authority in which] we work,’ says one. Others describe how the income is actually being used to finance existing housing projects. ‘We are using NHB to fund stalled developments that already have planning permission,’ explains a local authority worker.
The north London borough of Islington plans to spend its £3 million bonus fund entirely on new development. Patrick Odling-Smee, director of housing at the authority, tells the panellists at our round table event. ‘We love building houses but I am not sure that is how the rest of the world sees housing development.’ The housing sector should better understand why people oppose development, Mr Odling-Smee says. ‘People are going to find a way to use the [new] planning system to stop development taking place.’
Ian Jackson, director of development at the 17,800-home Longhurst Group, agrees the case for new development still needs to be made. ‘You can’t do short cuts,’ he adds. ‘Most communities are not very keen, but when you build they all say they were behind it right from the start.’ Longhurst spent a decade working with one village before just nine homes could be built, he recalls.
Both the round table participants and survey respondents pinpoint two chief challenges for affordable housing development: securing land and funding for new homes. Those who completed the survey collectively expect to build 60,770 homes by March 2015, but only a little more than half have secured more than 50 per cent of the land and funding they need (see graph 3, overleaf). Meanwhile, just over a quarter have all or very nearly all their funding arranged. More than a third, however, have only secured up to a tenth of the funds needed.
Respondents also report a tough land market and cash flow problems as significant obstacles to development. ‘Land value expectations are too high and land with chance of success at planning is still in short supply,’ one says. ‘We cannot afford to acquire any more sites and are simply building out our land bank and completing existing commitments,’ adds another.
Angela Wood, panel member and director of development at 20,000-home Family Mosaic, describes the land market in London as very competitive. ‘We are competing with other associations and developers for land. There is a danger of land prices being inflated. I have heard stories of people gazumping to get land sales.’
Such bidding wars are not, however, blighting land buying in the midlands, Mr Jackson, of Lincolnshire-based Longhurst Group, chips in. ‘This isn’t happening in the midlands. It is a very different market. There is so much opportunity out there.’
‘The major issue is funding,’ David Ripley, head of strategy at Home Group, which owns and manages 55,000 homes, tells the panellists.
Mr Jackson says Longhurst will eventually run out of equity against which to secure loans for development. ‘We will either have to create some significant income streams or look at real estate investment trusts or pension funds,’ he says.
Panellists are particularly concerned about a further drop in affordable housing funding after 2015. Most assume further deep cuts or a complete wipe-out of state subsidy for affordable housing.
Margaret Allen, executive director for the midlands at the Homes and Communities Agency, urges the panellists to find more creative ways to stretch their resources. ‘It isn’t about grant or no grant,’ she tells them. ‘What other forms of investment can you call on? It could be land investment or unlocking the potential of the many providers that are not developing at the moment. There is a whole world out there.’
Scottish Borders Council is hoping to raise funds from institutional investors, explains David Cressey, its head of housing and community justice. This is a path increasingly trod by social landlords as bank and building society lending becomes ever elusive.
‘We have set ourselves ambitious build targets but the days of grant are rapidly diminishing,’ he says. ‘We are looking at pension funds. We have developers coming to us, saying they have already made contact with pension funds.’ Islington Council is also exploring the institutional investor route, Mr Odling-Smee says.
When the question of whether the goal of zero carbon development is achievable is raised, there are mixed responses from our round table guests. ‘It is possible from a technical point of view, but what cost are people prepared to pay for zero carbon houses?’ asks John Churchett, national development manager at H+H.
‘It is one of the most challenging targets in the world,’ adds Andrew Eagles, managing director of Sustainable Homes. ‘We won’t be building all homes to zero carbon but it will kick-start us in the right direction.’
The HCA’s Ms Allen responds with some simple advice: ‘If you say you will never make a target you will miss it,’ she tells the panel, matter-of-factly.
Our survey reveals significant ambitions among social landlords for high-grade sustainable homes. More than 70 per cent hope to build at least some homes which meet the highest level 6 of the code for sustainable homes. A third expect to build all of their properties to at least code level 3. Mr Odling-Smee says that Islington has little ambition to go beyond level 4. ‘For us it isn’t a priority. We are prioritising measures to retrofit older stock,’ he explains.
A general consensus emerges among panellists that a ‘fabric-first’ approach to sustainable homes, with an emphasis on the basic materials of construction, is better than expensive untested technology. Several describe how their ‘fingers have been burned’ when testing high-tech innovations. Many ended up pushing up tenants’ energy bills rather than reducing them.
‘It is possible to get to the new [zero carbon hub] standards through fabric,’ Paul Ciniglio, sustainability strategist at First Wessex assures the panel, ‘but you need to have very efficient building services.’
Despite all these difficulties, the panellists do manage to muster some optimism about affordable housing development. ‘We are banging our head against cost and value but there is no shortage of opportunity at the moment,’ says Mr Jackson.
‘Opportunities are out there for inventive solutions,’ Mr Cressey adds. London-based Family Mosaic is also experiencing a buoyant market, Ms Wood adds. ‘We’re still successful in shared ownership and market sales.’
The discussion then turns to the changing relationship between local authorities and housing associations. On this topic, Islington Council’s Mr Odling-Smee shares some particularly strong views. ‘An interesting issue for us is that we have the resources, the land and the capacity to develop. What do associations bring to the table which we can’t ourselves? Associations have to be cannier about setting out what their offer is because councils can now do it themselves,’ he warns.
The approach of the G15, the group of large London associations, in particular, appears to have irked Mr Odling-Smee. ‘Authorities think globally about meeting housing need; the G15 think about business plans,’ he says, recalling his experience of a recent meeting with the group.
Longhurst’s Mr Jackson suggests the G15’s attitude is not typical. ‘There is a difference between the G15 and the rest of the country.’
Ms Allen, speaking for the HCA, urges councils to work with associations rather than adopt an adversarial approach. Such straitened times created an even greater need for social landlords to collaborate, she says.
Everyone needs to work together. You will never have enough money to meet all your need.’