As I sit in a hotel room in Madrid waiting for the main event to start
at the annual PwC Real Estate Conference I reflect on conversations last night
with clients and colleagues. Has the market reached its peak?
So has it happened? Has the market reached a peak, well following the
ONS revealing the first quarterly output drop in two years you can’t be blamed
for thinking so. This has also led to a downgrade by the Construction Products
Association. Despite all of this though there is still suggestions that growth
will occur over the next two years.
In context you need to look at the numbers. Output is expected to be
around £32.3bn compared with £33bn for six consecutive quarters prior to the
downturn. In the grand scheme of things that is not a significant variance and
do we really want to be up at the same levels as they were in 2007 considering
what then happened in 2008.
As previously discussed, there are other reasons for the decline. The
cost of construction has increased and continues to rise leading to developers
postponing certain developments. There is also a downturn in housing production
following the general election, or put another way the levels didn’t return
post-election. Okay, I accept that but housing is a strong requirement and
strongly supported throughout the industry so it will return as noted by
research from Shelter which highlighted only one in six properties for sale
were affordable for families with children on a set day, a number which fell to
one in 13 for single people for London.
Housing completions have recovered from the troughs recorded during the
slump, with last year seeing the steepest increase in output for 40 years, but
still just 145,000 homes starting on site. Now you won’t get big private
developers to massively increase volumes because they are pushing against
financial and organisational limits.
So how do you increase this housing output – well you need to tackle two
key areas:
- Planning remains an apparent hurdle to increasing the delivery of more homes. Though interestingly if you speak to local government they deny this to an extent and compare it to the number of planning applications which are granted year on year versus the number of housing completions and there is a big gap. Herein is the point that planning applications can be for a number of years. The proposals outlined in the Housing Bill do not do enough to ease this – they are trying to rush through applications rather than investing in processes to allow more to be processed correctly alongside each other.
- Supply Chain is an issue. There is a shortage of key skilled labour and key supplies needed in the construction industry – so can the supply chain really meet the demand of fulfilling 200,000 plus homes a year. Well there has been a significant increase in apprentices in recent years which will help longer term but significant under investment during the recession has created a gap. So achieve the targets there needs to be significant proactive investment – which won’t happen overnight.
To me, as previously said, the key is to improve access to SME firms and support this with clear government policy. The terms they are offered need to be comparable to the rest of the market. The government should use the resources available to it, for example providing loans to SMEs out of the Help to Buy pot (after ofcourse it was increased). Living in a small village myself there is too much focus on high volume sights which generally are rejected by the village. The local authority should look at smaller sites for SMEs and focus on these in planning. The problems are fixable but they need support and focus from everyone, led by government policy.
Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to
property and construction.
Enjoy
the weekend
Lee
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