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UK Housing: Why couldn’t we hit the 240,000 homes a year target?

18th June 2015

In 2007 the Labour government set a target of building 240,000 homes a year by 2016, but that target has been consistently missed. In 2006-07, before this target was set, the UK built 219,000 homes, however we haven’t been able to achieve anywhere near this level since, so why is that?

Since the target was set in 2007 it seems that there has been a slow decline in the number of new homes being built due to the financial crisis with 2012-13 seeing a post-war low of 135,500 homes. Last year the figures recovered slightly to 141,000 homes, still some 99,000 below target. When the coalition Government came in to power they scrapped the 2007 target and the Conservative government elected earlier this year have now set a target of 200,000 homes a year.

On the surface the 2007 target didn’t seem unachievable, for years after World War Two the UK was building more than 300,000 homes a year, so with consistent advances in technology surely we should be capable of exceeding these levels in today’s market. However recently we’ve only managed to build about half of that.

In May 2014 Governor of the Bank of England, Mark Carney, complained that the UK built half as many homes as Canada, despite our population being twice the size. The result of this low housing output is that prices have rocketed across the country, particularly in London and the South East.

What are the challenges that prevented us hitting the 2007 target?

Planning Permission

A study found that 95% of builders thought the ‘modest’ industry target of building 200,000 new homes by 2016 was unachievable, with local opposition and the planning system being the main reasons provided.

The Government attempted to introduce a simplified version of the planning system in 2012 after complaints from across the industry regarding the time the process took to complete. These changes do seem to be working to some extent with the number of planning permissions for new homes reaching 240,000 in September 2014, however all of these applications needed to be processed, passed and built in order to reach Labours 2007 target. There has been a steady rise in the number of applications receiving detailed permission over the last four years, from 158,000 in 2001 to the 240,000 figure in 2014, which suggests that the system is speeding up.

Lack of Land

Both the House Builders Federation (HBF) and the National Housing Federation (NHF) agree that land is the biggest long term constraint for housebuilders in the UK. According to the NHF local plans which are drawn up by councils often fail to identify enough land to meet local housing needs.

A Department for Communities and Local Government spokesperson said: “We’re well on track to have released enough formerly used, surplus public sector land for 100,000 homes by the end of this parliament – and the Autumn Statement included plans to identify similar land for an additional 150,000 homes in the next five years.”

Aside from the lack of land set aside for housing the price of available land has also increased, from 2000 to 2008 residential land prices rose 170% compared to house prices, according to the IPPR.

Supply and demand also plays a part in the housebuilding industry, those who do manage to purchase large sites will often develop and release the houses for sale gradually in order to keep the prices high instead of releasing a lot at once when the property prices would fall. The HBF argues that big sites take years to develop and say that housebuilders can only build at the rate a local market will support so local authorities should include a larger quantity of smaller sites within their plans.

Public vs Private Sector Housebuilders

One of the major differences between housebuilding today and in the post war high is that councils no longer build homes themselves. In the late 1940s and 1950s councils were building more homes than private developers. They continued to build 100,000 homes a year until the late 1970s when the numbers fell under Margaret Thatcher’s reign. While private sector housebuilding rose in that time it wasn’t enough to compensate for the fall in public sector housing, it was housing associations who were expected to fill the gap. In the same period council tenants were given the right to buy their homes with the release of the Housing Act 1980.

On the surface it looks like the private sector alone is unable to meet the 240,000 homes a year target, however they have already exceeded this three times in years gone by, although all three occasions were in the 1930s.

Housing Associations

Non-profit housing associations have been given the job of providing social housing since the state stopped building homes. In 2013 they built 21,600 new homes, however The Policy Exchange argues that this number could increase if regulations are relaxed. Rachel Fisher, head of policy at the NHF says there are rules over how they set their rents, let properties and how stock is valued which all reduced their ability to borrow money for housebuilding.

In addition to this the 2010 spending review reduced the annual housing spend which supports social housing by about 60%. There are currently an estimated 1.7 million people on the social housing waiting register in England.

Skills & Material Shortages

When the UK economy spiralled into financial crisis the construction industry took a significant knock back, the uncertain finances forced developers to stop building and UK citizens took to improving their current homes instead of moving house. As the industry slowed down many skilled workers left the industry in search of more certain or stable work, now that work is picking up it’s become apparent that there are not enough skilled workers to keep up with demand.

Dave Brooks, Managing Director at Bromak Recruitment said: “Good skilled candidates are becoming increasingly difficult to find. We’re working very closely with our sister company 3B Training to upskill workers and get fresh talent in to the industry and out on site. We’re having to explore new markets and try new things to keep finding great candidates.”

Aside from the shortage of workers the industry is also struggling from a lack of materials, in early 2015 there were concerns over the lack of bricks available to the industry. The absence of high quantities of such supplies could bring a halt to the industry.

Lack of Small Housebuilders

Many smaller housebuilders didn’t survive the financial crisis, in 2007 there were 15 firms providing more than 2,000 homes per annum, following the economic downturn there were just six who remained to provide that level of output.

The Government has taken steps to help small builders by cutting the Section 106 affordable housing and tariff style contributions for firms that build 10 or fewer homes per year. They have also offered a Builders Finance Fund of £525 million to help restart work on smaller sites across the UK.

So is the 2015 target achievable?

Although it seems there are a lot of challenges to overcome in order to hit even the lower 2015 target set by the Conservative government there is scope for it to be achieved by the 2020 deadline.

Recently David Cameron said that for decades the UK had been suffering from a ‘chronic’ shortage of housebuilding but that action had been taken over the past five years which has put us in a position to hit the 200,000 homes a year target by 2017.

With the UK economy looking up, the planning permission process becoming easier, more land being release by local government and additional support for small builders, it seems that this latest target could be achievable, possibly even before the 2020 deadline. However, with a market as volatile at the construction industry there could be additional challenges waiting round the corner. Watch this space.

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