Bonds for building – why the government needs to support insurance for new homes

Building performance bonds are designed to cater for exactly this kind of situation. They guarantee a company’s obligations under the contract and thereby reduce the risk for the client who appoints them. Adequate bond cover is a condition of most contracts, but following a string of high-profile construction business collapses, insurers are tightening their conditions or starting to withdraw this kind of protection entirely.

Last month’s announcement by QBE Europe, one of the biggest providers, that it’s going to largely exit the surety bonds market was a particular bombshell. The Europe-wide insurance company currently provides bonds for 20 of the UK’s 30 biggest contractors. Its stop on new business represents an immediate hit to a sector that’s already struggling to cope with the perfect storm of increased borrowing costs, higher inflation, skills deficits, materials shortages and planning delays.

“Adequate bond cover is a condition of most contracts, but following a string of high-profile construction business collapses, insurers are tightening their conditions or starting to withdraw this kind of protection entirely”

This shockwave is already feeding through into the decisions that housing association boards are willing and able to make. Whatever the benefits and value of working with regional firms, it would be reckless for any provider to sign a contract without knowing that the requisite insurance cover is in place. This, in turn, means projects being stalled and families not getting the homes they need to build secure and happy lives.

With politicians having traded competing targets for housebuilding in the run-up to the general election, they now need to think and do more to help make those pledges come true.

EMH recently joined forces with five other housing association developers in the East Midlands to write to Homes England and the Department for Levelling Up, Housing and Communities (now called the Ministry of Housing, Communities and Local Government) with a call for government-backed insolvency insurance bonds to be made available for SME contractors.

Apart from securing the investment and assurance to make it more viable for our boards to commit to housebuilding contracts, we argued that this move would generate greater social impact (for example, through extra apprenticeships and local employment), while encouraging smaller companies to enter or remain in the market to strengthen competition and diversity.

In times past, critical industries looked to national government to intervene when market forces faltered – and it feels like we’re in that position now. Failing to build the homes our nation needs is just not an option. So there’s a pressing need to harness the power of both the public and private sectors to get the outcomes we want to see.

A construction industry that’s left to become an oligopoly of a small number of large firms would put the housing prospects of future generations in even greater jeopardy. It would also represent an abrogation of providers’ core social purpose as highlighted in the Better Social Housing Review. 

“A construction industry that’s left to become an oligopoly of a small number of large firms would put the housing prospects of future generations in even greater jeopardy”

Proper insurance cover is a vital cog in the mechanism that allows us to build the variety of tenures and home types that will create balanced, sustainable neighbourhoods for the long term. While the current emphasis is very much on building for social rent, my team has developed and sold 221 homes for shared ownership over the past year.

We passionately believe that housing need is best met through a blended approach. And if builders can’t access proper bonds, we won’t be able to continue creating successful, mixed communities. I think the government has a duty to protect this important part of the housing system.

Homes England and the Ministry of Housing, Communities and Local Government have responded to our letter by indicating that the idea of government-backed performance guarantees is “being discussed”. But there have been no clear signs of action to date.

I hope that the incoming government will grasp the urgency of this situation and use its mandate to intervene in a positive way. To get Britain properly building again, we need confidence and surety.

Chris Jones, executive director for development, EMH