Few topics are as regularly in national conversations as the UK’s housing market. Rising and falling house prices, the difficulties faced by young people getting onto the property ladder, the state of the rental market, the shortage in housing stock and the need for – and opposition to – increased development activity: on any given day, you are as likely to find one or several of these issues featured in the broadsheets and tabloids as you are the latest political scandal or celebrity gossip.
Being the object of routine public scrutiny in a highly politicised industry is one of many challenges housebuilders face. Yet this is nothing new in a country where the aspiration towards homeownership is indelible in the social contract.
Of all the obstacles that developers are currently facing, the one that vexes housebuilders across all regions the most continues to be the planning regime, resulting in massive delays that have a powerful negative impact on business. If they cannot build houses, it logically follows that they cannot sell them, either.
Another major cause for concern is the high building costs resulting from the shortage of materials, which is driving up prices. Housebuilders continue to struggle to source critical products such as bricks, blocks and cement, and the supply bottlenecks create year-on-year price rises. As, of course, is the steep rise in inflation.
The third significant hurdle developers face is the need for more skilled labour as demand continues to outstrip supply. A recent study conducted by recruitment specialist Search Consultancy found that 83% of businesses in the construction sector feel the strain from a lack of skilled workers – a problem that the UK’s exit from the European Union has done nothing to alleviate.
In addition to these problems, land cost is becoming a grave cause for concern, especially for small to medium-sized house builders.
Unlike the major national developers, who have a much bigger war chest and can therefore still afford to snap up large parcels of valuable land, SME-scale house builders are being outcompeted on their home turf and are having to look ever further afield for affordable, yet still attractive, development sites.
Although some of these obstacles have been many years in the making – especially in terms of the long-standing problems surrounding the planning regime and the acute housing shortage – the Coronavirus pandemic and resulting materials and labour shortages have all certainly turned up the pressure massively, and the situation has really come to a head today. As a result, housing and land development have become real hot-button issues.
With larger-scale housing developments in particular, NIMBYism and politics are never far away, with the promotion or obstruction of housing developments often serving the political interests of the local, regional or national powers that be.
Another highly politicised factor in housebuilding is meeting the Government’s demands in terms of sustainability and Net Zero targets.
Developers must adapt how they work to comply with stringent new regulations such as the Future Homes Standard, which will be introduced in 2025 and demands that new builds are “future-proofed with low carbon heating and world-leading levels of energy efficiency”.
On top of these supply-side issues, housing-development activity is also overshadowed on the demand side by the general uncertainty and caution that pervade the wider housing market. Owing to the sharp rise in interest rates and the removal from the sale of hundreds of mortgage products over the past year, there is an alarming lack of confidence in the strength of the purchaser market over the coming months. As a result, many developers have been applying the brakes as they sit back and wait for healthier sales rates.
This is a very understandable reaction in a sector that requires hefty cash outlay that is only recouped and turned into profit once the final plots of the respective development are sold – not many businesses can afford to have their debit column far outpace their credit column for very extended periods without feeling the pain and bleeding confidence. Developers are, therefore, suitably nervous, which is having a ripple effect throughout the industry: caution is contagious.
In our Housebuilders Campaign, we explore the problems and concerns of this sector outlined above in conversation with five regional developers. In doing so, we highlight some of the champions of this industry and discuss the innovative approaches they are taking to alleviate some of the sector’s biggest headaches. I hope you find it as interesting and informative as we did.
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