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Will the Government’s New Year Resolutions Stick?

by Paul Addison on January 13, 2016 No comments

As we head off into another year, we are faced with similar issues to the last. David Cameron’s first policy statement concerned housing to underline its importance to the fabric of our society.

But what will actually shift for the better this year and what do economists and the construction industry think will be the case? We read the runes for you.

The Government have been keen to keep the hare running, with the announcement of 13,000 new homes in the South East on brownfield public land highlighting a “dramatic shift in policy”. However, this forms one part of an increasingly complex mix of initiatives designed to loosen up planning constraint and free up land for development.

We know it is all about local supply to meet local needs – the more we build, the more supply will manage housing costs and affordability within communities. That is assuming the economics stake up for the house builders and that sites are viable.  This is where affordability will remain an issue this year as the risk will be baked into the market price – especially in the South East.

A Positive Year Ahead for Builders?

That said, the construction industry is in a buoyant mood for 2016 and beyond. The latest forecasts from the Construction Products Association forecast that overall output will rise 4.2% in 2016 and 3.5% in 2017. Private house building will rise 5.5% in 2016, while public housing will fall 5% – showing where the investment balance will lie, unsurprisingly.

These growth figures are more than twice the rate of overall economic growth, but long overdue – construction has always been the brake on GDP in prior years.

The house builder Bellway has unveiled some ambitious sales targets for the year ahead. They predict that total completions for its full year to the end of July 2016 will rise by around 10 per cent, after it completed 7,752 homes in total 2015. The average price of new completions will also rise by around 10 per cent.

 Bellway point to measures announced in the government’s recent autumn statement, particularly in relation to the amendments to the Help to Buy scheme in London and its extension in England until 2021, not only provide access to mortgages for homebuyers but also provide further visibility in relation to the longer term outlook when assessing land opportunities.’

 While Chancellor George Osborne’s ambitious £7billion pledge to build 400,000 new homes across UK has whetted the appetites of developers, there remains real concern that the construction sector can actually build significantly more houses. Purchasing managers have cited shortages in key materials, supply chain capacity and skilled capability.

 Consequently, many firms have been forced to use more expensive contractors.  This again will stress the economic models of developers and lead the, to cherry pick the best sites, shunning the more available, but more awkward brownfield options.

Not Enough Focus on Supply, say Economists

Most economists believe that these measures just address the demand and not the supply side enough.

Ethan Ilzetzki, a lecturer at London School of Economics, said the 400,000 new affordable housing starts was still not sufficient to keep up with population growth and that with no meaningful increase in supply, the help-to-buy measures “translate one-to-one into housing prices.”

Steve Hughes, Head of Economic and Social Policy, Policy Exchange has predicted that housing supply in England will rise to nearly 150,000 completions in 2016 (~130,000 in 2015).This is still well below the 150-180,000 a year average in the 1990-2008 period.

The lag in the system means that impacts on supply will be modest at best and ironically may occur best when demand is lower in a dampened or depressed episode in the economic cycle.

Ray Barrell, Professor, Brunel University and VA Research has suggested a systematic dismantling of the Greenbelt combined with careful planning of the resulting urban development to make any form of quantum change of housing supply. But nimbyism and local constituency politics could hold sway and keep the brakes well and truly on.

A Postcode Lottery of development

And this is the rub, really. Slow and highly variable planning decisions mean a postcode lottery of impacts on the community. Some will be devastatingly large scale where marquee schemes irrevocably change the character of a town. Others will be more forensic, infill, brownfield plots that could increase density, reduce light and privacy.

The runes remain murky reading and we believe another year won’t lead to any more certainty.

For more information on how DevAssist can help you this year with development risks and opportunities for you and your conveyancing solicitor, call us on 01342 890010 or email info@dev-assist.co.uk

Paul AddisonWill the Government’s New Year Resolutions Stick?

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