What is happening to UK housing?

In her recent speech at the Conservative party conference, Theresa May repeatedly declared the UK housing market ‘broken’, attributing this to a lack of homes nationwide and unaffordable house prices that prevent young people from getting their foot on the property ladder.

Newview Windows & Conservatories’ director Michele Wietscher reviews the current state of the housing sector and gives a prognosis for the future.

A recent IHS Markit/Cips UK Construction PMI survey showed a continued drop in the amount of new work being undertaken in the industry in the month of September. These findings are consistent with those of the Office for National Statistics (ONS), which similarly reported a 1.4% drop in the new work completed in July 2017, compared with June.

The IHS Markit/Cips UK Construction PMI review also states that the fall in new work this month led to the first reduction in overall business activity since August 2016 and the fastest decline in overall construction output since July 2016.

In terms of the types of work being carried out, the new figures show that commercial and civil engineering activity decreased in September and, although its growth momentum slowed to a six-month low, house-building was the only area of the industry in which activity increased.

Earlier this year, the government stated that 250,000 new homes needed to be built every year to meet the current housing demand. To ensure that this target is met, the government produced a white paper in February that outlined the measures it intends to implement to achieve this figure. These included:

Encouraging the extension of buildings upwards in urban areas

Supporting off-site construction, where parts of a building are made in a factory

Employing a £3 billion fund to try to help smaller building firms challenge larger developers

The government has also requested that individual local councils produce new, detailed plans, which explain how they intend to meet the housing demand in their respective areas.

Local councils are also obliged to review this plan every five years so that they can ensure they are keeping up with changing demands.

Consistent with the Cities and Local Government Devolution Act of 2016, housing targets for different areas around the UK are no longer set nationally. Instead, local planning authorities confer among themselves, decide which land to use, and set their own targets.

Central government also offers ‘new homes bonuses’ to local councils. These grants reward and incentivise housing growth and development, and are paid every year for six years to different local authorities across the country.

The government has also chosen to offer councils an additional grant which reflects the number of affordable homes built in each area. The table of allocations for 2016/17, released in February of last year, offers a useful insight into which authorities have produced the newest or affordable houses.

For 2016/17, the total amount of grants allocated to local councils reached over £4.8 billion, and central government expects that authorities given these funds will consult with their communities when deciding how to spend this money.

In her conference speech, the prime minister referred to public sector housing, stating that she intends to kickstart the construction of “a new generation of council houses to help fix our broken housing market”.

At the same conference, Theresa May announced that the government will be investing a further £2 billionn in affordable housing, bringing the country’s total affordable housing budget to almost £9 billion. In turn, this extra funding means that 25,000 more homes can be built nationwide.

The government states that it will encourage both local councils and housing associations to bid for sums of this money and has promised that these houses will be available to rent at a rate that is affordable for locals in each respective area.

The causes behind the UK’s now dysfunctional housing market are manifold, but perhaps one of the biggest of these is what is known as ‘land banking’.
Land banking involves developers and house-building companies either holding on to land or building at a very slow rate to keep houses in demand and prices as high as possible.

The average price of a hectare of land with planning permission is £6 million. This means that, although large house-building companies such as Taylor Wimpey, Barratt, Berkeley, and Persimmon are estimated to be sitting on more than 450,000 plots, these companies have little choice.

For developers, it makes more sense to sell plots than to build on them and so, for house builders, initial land prices are so high that they are forced to build in a way that keeps prices high.

Over the past few years this vicious cycle has led to what Theresa May has described as a ‘broken’ housing market.

In the housing white paper released in February, the government suggested that it will support off-site construction as part of its efforts to meet national housing demand. Consequently, we can see a rise in the number of modular homes being built off-site and installed around the country.

Modular houses are built in factories on an assembly line, and this helps to ensure each home’s quality and safety. They are often made in ‘modules’ which are then assembled onsite.

Legal and General Homes are one company currently manufacturing modular homes at their factory just outside Leeds.

Here, it takes one week to produce a single prefabricated flat – the factory can produce 3,500 flats a year. Legal and General Homes also reports that the UK’s annual housing output is currently 132,000 homes, adding that the country needs to produce a further 250,000 in order to meet demand. Given its quick turn-around, the company believes that its own modular homes can help meet this demand.

Although companies such as Legal and General offer a quick turn around on their modular housing these homes are not without their issues.

When it comes to purchasing a modular home, it is likely that manufacturers will require the money up front or in several instalments over the course of construction. This could prove difficult for buyers who may need to take out a construction loan to finance their home. After the building is complete a buyer may be able to have his/her loan converted to a mortgage but this likely to be a source of stress for new homeowners.

Resale of a modular home is also a potential issue. The fact is that modular homes are often of a very high quality – equal to many homes built on-site. However, now, modular homes are still shaking off their reputation as simplistic, cheap housing and, given the newness of the trend for them as permanent houses, potential buyers may be wary of investing in modular buildings.

Unfortunately, the reality of prefabricated houses is that they are all likely to look the same, at least on the outside.

Legal and General states that the insides of their houses can be customised to suit the needs of buyers but some may judge that the exterior of the house lacks character – blending in with the surrounding homes if installed on an estate and essentially creating a generation of homes which some may consider plain and boring.

Additionally, the government’s data – released along with the information on new homes bonuses – draws attention to the number of empty homes that are being converted into habitable dwellings. Among the local authorities listed, Gateshead renovated the most homes (410), followed by Bristol (246).

Going forward, this type of renovation could offer a cost-effective and environmentally friendly opportunity for local authorities to increase the housing available in their areas. This could also be good news for those of us in the home improvement and construction industries.

Similarly, permitted development rights allow developers to convert buildings without having to apply for standard planning permission. While there are some restrictions – projects will often have to be approved by local authorities – this means that buildings current in use as offices, laundrettes, or in light industrial use, can be changed to dwelling houses.

In October 2015, this right was made permanent, opening opportunities for builders and renovators across the UK to help recover the housing market. However, for companies seeking commercial office space these new permitted development rights have complicated their search as the stock of empty available office space begins to decrease.

www.newview-homes.co.uk

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