Are government schemes Funding for Lending and Help to Buy having an effect on the construction sector?
Yes, both schemes are helping but the rising demand for houses still far outstrips the supply, and this is reflected in rising prices in London and the south east of England. Many people are now talking of a bubble, and this must be avoided. Ways include clearer and less costly planning, reduced regulatory burden on issues like building regulations and carbon reduction and better access to finance for SMEs. Bear in mind that both schemes are time limited and the industry needs to have a long term recovery strategy, not work in increasingly short cycles of boom and bust.
To those outside the industry, construction is seen as a single, homogenous industry when, in fact, there are companies ranging from the very small to the very large, generalists to specialist craftsmen and those who focus on housebuilding. The intention behind Funding for Lending was to help small and medium-sized enterprises (SMEs) and individuals gain access to finance. What has happened is that Funding for Lending has become a cheap source of finance for banks which can reduce mortgage rates to existing lenders and have little motivation to lend to new borrowers. Banks still see SME builders, unfortunately, as a high risk group.
Help to Buy is different in that this is the first time barriers to entry have been lowered to the point that SMEs can participate. When I say that the barriers have been lowered, I am not saying that there has been any compromise in quality. What it means is that by addressing the administrative burden, the Homes and Communities Agency has increased the reach of the scheme to include SMEs. What remains to be seen is whether the increase in activity can be sustained when Help to Buy runs its three-year course.
Is the government’s strategy to address the housing crisis working? What else can government do?
We welcome the Government’s efforts to address the housing crisis, however it is important to keep the whole picture in mind. Helping one side of the equation ie buyers is not helpful if there are still considerable barriers to housebuilding by smaller builders. Specific attention needs to be paid to policies that address the difficulties faced by SMEs, as these are companies that can really get the economy back on track. They are local, they help local buyers, they know the local environment and they help to boost the local economy by creating or preserving local communities. Access to viable sites remains a major burden, especially for SMEs, because of rising land prices.
NFB represents SME builders – have government schemes helped them compete with big construction firms?
Some previous government schemes such as First Buy and New Buy did seem to provide a source of finance for the largest housebuilders and were credited with an improvement in their fortunes. These schemes effectively channelled the UK’s legions of first time buyers through the funnel of the top seven developers, leaving smaller house builders out in the cold. Our members do not set out to compete with the bigger housebuilders per se, except for occasional competition over sites, although the different business models at work mean this is rare. SME builders play a vital part in the local economy, contribute to overall housebuilding numbers and could enable thousands of buyers to buy homes that are based around local communities. Not everyone wants to live on a large, new development. Smaller builders create choice for the consumer, often reviving existing communities by building new homes in close proximity.. They don’t want to compete, they want to be able to build the homes that are wanted by buyers. Help to Buy has helped to level the playing field, but we need to develop a more sustainable solution that builds on and looks beyond the three-year life of Help to Buy.
Despite a new sense of confidence in the economy, construction output fell by 0.5 per cent in the last quarter. When can we expect it to start growing again?
As I mentioned before, the construction industry is not a single, homogenous industry. While headline figures have shown decline in the industry overall, a look at the detail shows that some sectors such as housebuilding have been performing positively. What we will see over the next year is a continuation of that housebuilding growth. What we will also see is the confidence I am witnessing in other areas of the industry being translated into measurable growth, hitting whole figures rather than the fractional growth achieved to date.
What messages do you want to get across at your
fringe events at Labour and Tory conference?
Smaller house builders are struggling with planning and regulatory burdens, all of which is costing them disproportionately more compared to larger companies. We want to see an end to planning uncertainty, a fairer and more standard application of CIL, clearer understanding of new building regulations, zero carbon and more coordinated thinking from the Government on promoting land supply into housing and the operation of different markets (for example, new stimuli for low demand areas outside London, the SE and the Midlands.) For Labour, we are leading industry talks with key policy makers about the continued need to build far more homes than are currently being built to meet demand. For the Tory conference, we are seeking certainty that the changes to the planning system in the NPPF are not subject to further additions and/or caveats, giving the NPPF time to bed in and create confidence from all sides in the planning mechanism. We want to see both parties recognise the value of SME builders alongside major housebuilders, as both are needed to deliver the level of new homes anticipated in coming years.
What value is there in NFB attending party conferences?
We place a great deal of value in attending the party conferences, which is why we are holding
fringe events at both the Labour and Conservative conferencesfor the third consecutive year. They provide a vital means of communicating with party delegates and local authority and ministerial decision makers. Our events have been very popular and it is clear that party members as well as politicians are concerned about the housing crisis and the central role that housebuilding can play in the economic recovery and ultimately lowering the cost of living for the consumer with more affordable homes.
Do local authorities have enough powers to build new houses?
Local authorities (LAs) have no building powers at present, only the granting of permissions. They are obliged to produce an up to date assessment of housing need and, based upon this, a clear Local Plan. The evidence of early Local Plans to be assessed is that numbers submitted remain the same or in some cases exceed the targets set by the old Regional Spatial Strategies. Approximately 60% of LAs in England now have an effective Local Plan. This suggests the NPPF is working, and that enough land has planning permission (the rule of 5 year supply) to get building. The impediments remain viability, where land cost cannot be justified by cost of construction and the final value of the house, working capital for small builders and the limited borrowing capacity of consumers.
The government could go further and enhance the NPPF and the localism agenda by lifting the local authority borrowing cap and enhancing prudential borrowing rules for councils. Local authorities could develop their own social housing as well as their own revenue streams and let SME builders get on with what they do best - building quality homes in the private sector. New social housebuilding programmes led by local authorities would also provide an additional boost to the sector by involving SME contractors in the supply chain and in local, small scale social housing schemes.
How can councils and local builders work together in regard to planning and land supply?
It would be useful if the planning process could be stripped of prevailing pre-condition processes that sees developers submitting anything up to a 1000 pages of documentation on a single house! The cost of planning even modest developments has escalated enormously as councils require the documentation of various impact assessments that in many cases will never be read. Direct dialogue between developer and planner would be more beneficial than satisfying tick box exercises that are not essential to good town planning. Planners only need to know that the anticipated burden of forthcoming development is adequately covered in developer contributions and this is dealt with in the Section 106 process.
What changes are needed to the planning system?
LAs need to complete and submit their Local Plans as a matter of urgency. We also need to see more cross boundary working in practice to unlock some prime sites. The system does not need to change again, but requires better resourcing so that applications are dealt with competently and efficiently. Cutbacks in planning departments nationwide is a major contributor to the slow emergence of Local Plans.
The planning system is heavily biased towards the allocation of large sites. Large sites are needed for the long-term supply of homes and they deliver over a period of 10-15 years. Far more emphasis needs to be given to smaller sites, encouraging bringing them forward for development through policy. We need to do this if we are to have any hope of achieving our housebuilding aspirations as relying on large sites that do not implement planning consents has not produced the level of housing required.
Do carbon reduction and low carbon home building regulations hit SMEs the hardest?
Yes, because they cannot achieve the economies of scale in purchasing the necessary materials, and have a greater proportional burden of upfront investment. The smallest schemes have no viable onsite renewables capacity, and this is not understood by many planning authorities who take a blanket approach to carbon compliance. “One size fits all” local standards such as the Merton Rule can price out small builders.
What can be done by local and central government to help SMEs by giving greater transparency of future work opportunities?
The Government is improving its pipeline of construction work which is updated every six months. This outline of construction and infrastructure work which goes to 2020 and beyond helps companies to plan labour, training and workloads because they can see future opportunities. However, most SMEs engage with local, rather than central government and the provision of pipelines at a local level is less uniform. Where local authorities excel is in holding Meet the Buyer events for short-term opportunities where companies wishing to compete for work can understand the opportunities and develop a relationship with their local authority.
How does construction fare in the government’s Industrial Strategy?
The construction industry is seen by the Government as one of the enabling industries, that is an industry that benefits not only those in it, but also other industries across the economy. This is a key indicator of how important the Government sees the construction industry’s role in recovery and growth. Construction 2025, the construction industrial strategy, lays out a set of objectives for people, technology, sustainability, growth and leadership that will realise the vision of where the industry should be in 2025.
How can the goals of the Government’s ‘Construction 2025’ strategy be achieved?
The industry has been working with the Government to define the programme of work that will help implement the strategy. There has been cross-industry buy-in and government support for the work so far. In order to achieve those goals, that method of working needs to continue. I sit on the Delivery Group which is devoted to the delivery of the strategy, ensuring that projects are clearly defined and that timetables are kept. There is a huge role to play for organisations such as the National Federation of Builders in communicating to members the goals of the strategy and how we can all achieve those goals.