A successful partnership has many benefits

The Autumn Statement has been and gone and from a housing perspective the detail was already known about the creation of funds to invest in housing. So all good on that front.

But under the skin of it all is a housing market that needs stimulating and although the measures announced in the budget provide a certain level of stimuli there is a great need, to me, for more partnerships to be formed to really help deliver longer term housing growth. Why partnerships? Well some schemes that need to be and can be delivered are long term and usually involved the public sector who simply do not have the resource to deliver, what they do have though is land and an ability to work with the community to deliver.

The Government's Housing and Planning Bill, following on from the National Planning and Policy

Framework reflects “a commitment and strategy to deliver a step change in housing delivery in building new homes in the UK and alleviating the housing crisis”. So what can prevent this occurring, well quite frankly a lack of resource – particularly housing associations and local authorities – which are the key to unlocking significantly higher housing growth.

So how could it work – well you take (a) private housebuilder with labour and materials and (b) a local authority with land in areas needing regenerating = (c) a regenerated city with more affordable housing – see, simple as “a + b = c”. But you can’t simply create a partnership – you need crate something that will survive and thrive.

The key to success for a partnership is having shared objectives and working to achieve these objectives and that means:

·        Leadership is needed by all parties involved to deliver the vision;

·        A shared vision is needed to engage the parties involved, bring in the community together and above all it supports each other’s values, this in itself creates a long-term, robust plan. Imagine a partnership that has the goal of regenerating a local area, this could take decades therefore needs the early vision’

·        Due to the timeframe of delivery then needs to be an embracement of the bad times as over the life there will be the cycle of the market. Hold the nerve and plan this into the budget, or even better seek to take advantage of the cycle; and

·        Constant communication and transparency in those communications. Private and public sectors have differing objectives and therefore there needs to be an acceptance that the public sector may be more risk adverse –by keeping good transparent dialogue will help the partnership bond.

The outcome to a true partnership can be something unique. I have visited many cities in my life and you always remember certain parts of each of them – to me seeing the regeneration of my home city, Sheffield, brings feelings of hope and prosperity but also patience, “Rome wasn’t built in a day” springs to mind! The outcome is something the public and private sector can look back on and feel proud to have achieved but also the community look forward to the possibilities it will help them achieve.

We need to reflect that “real assets” impact us all. They are where we work, live, play and learn and therefore each of us has a desire to create the best space to achieve this. Bringing the best of both worlds together can really help unlock the potential of some of our regional cities and create spaces that attract the best businesses’ and the best people.

 

Enjoy the rest of the week and a always any comments on the blog are greatly received.

 

Thanks

 

Lee

 

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House prices still on the up

The average house price in October rose slightly, according to Halifax, but does this simply hide a wider issue of a growing supply shortage across simply everywhere. The Government has simply accepted delivering 1,000,000 homes by 202 will fail – but who actually believed they would – and I really fail to see how a £18m fund will help boost housebuilding, but I’ll give Gavin Barwell the benefit of the doubt.

The simple fact is that it was a surprise for the house price index to grow in October and counteracted the slowdown which has left construction at its lowest levels for a number of years. The rise was only 1.4% but an improvement on the 0.3% seen in September and meaning in the quarter ended it was a very healthy 5.2%.

A recent survey by RICS, the Residential Market Survey, is finding that people cannot find a house – the supply has become so sparse with what is available simply being unaffordable and to add to the agenda, it is expected Americans may seek to relocate to London following Trump’s victory.

So the answer to help – well the sector is asking for the Green Belt to be opened up for development, a fund of £18m fund to speed up house building on larger sites which in turn should provide thousands of homes. In fact the CBI has outlined some recommendations (all of which are relatively sensible). The £18m fund can be applied for to help planning issues that can cause delay but is the amount really enough.

In a world that is every changing, one thing seems to remain static and that is the plans to address housing. Over the last few months I have read report after report which outlines 1,000s of homes that are coming to market yet they all seem to stall for one reason or another (so maybe the fund will help?) but this alone will simply not resolve anything. The key is for LA’s and HA’s to really get building again and therefore it was reassuring to see plans for a Northern HA to do just that – let’s hope this continues more broadly.

House price growth to flatline in the short term

The weather is certainly changing. Last week, locally we saw the first snow and the frosts are coming in thick and fast. It certainly feels like a time to be pulling down the blinds, getting out the blankets and wishing for warmer climates. The same could be said about house prices.   The average UK house price remained unchanged in October, not too unsurprising given it is expected that house price growth across the board will flatline across the next two years. The Nationwide published their latest house price index and simply it showed that average price was £205,904 compared to £206,015 the month before – a minor slip but it’s negligible, and still approximating to six times average annual earnings. Not to spread any fear but the last time the prices/earnings ratio was this high was around March 2008 (and we all remember what happened next!) as house prices have grown by 20% versus a wage growth figure of 6% - feeling squeezed?   Despite this there is a reassurance that house price growth will resume in due course (rather than crash). The predictions for example of JLL are 0.5% in 2017, 1% in 2018 and then up to 4% in 2020 compared to Savills of 13% over the next five years. Hard to imagine a further 13% house price growth (though will do wonders for my retirement fund!). The interesting point is Savills predict rental will increase faster than house price growth – good news for the vast waves of new properties out there for rent, but also clearly is showing the shift towards Generation Rent. In fact rents are forecast to increase by 19% versus 13% for house prices – though this is clearly a challenge for anyone looking to enter the housing market.   There is a shining hope in the form of offsite manufacturing which could put a huge dent into the housing crisis, or at least at the affordable part of the crisis. The construction resurgence is showed through NHBC revealing new homes registered is at its best levels since 2007 with 18% being affordable homes. With offsite shaking off its poor reputation the Government has given it a boost with a strategy change by embracing pre-packed homes. The aim is to target younger buyers with more details expected in next months White Paper (or maybe even as part of Autumn Statement 2016).   The benefits of pre-packed or “modular” homes are clear – quicker to build and it’s cheaper. The certainty of housing market over the next few years is hazy but one thing is true, housing is needed and therefore is a need to innovate the sector to keep Britain building and housed.

 

 

 

 

Heathrow and house prices - the key link

On a week that commences with the PwC Real Estate Conference you can’t help look and think about the environment around you. I start this blog sat in London Heathrow airport waiting for a 6:20pm flight. Seeing evidence of infrastructure like Terminal 5 is inspiring to know that in the UK it does still happen, but does it happen enough? The approval of a third runway at Heathrow is a bit like marmite – you ever agree or you don’t. To me it’s key the Government have made a decision. The best way forward to actually delivering in a timely manner but also not to completely ignore other airports for growth and let us not forget the Northern Powerhouse. My experience at Manchester Airport was fair more smoother and friendlier than Heathrow!

The construction of the new runway at Heathrow will naturally be a boost for construction but also could have an adverse impact on house prices in the area – could this be a sign of things to come in the Middlesex area with increased noise – and let’s be honest a 6.5 hour night time ban will not exactly be a solution. The optimum sleep for an adult is between 7 and 8 hours so this 6.5 hour ban will not benefit anyway other than those who sleep specifically during those periods.

Although it is nice for once not to hear the soaring prices of London residential space, I do wonder at what point the blip in London prices will ripple out to the regions. The marching ever upwards of UK house prices can be argued to be creating wealth in the North but also taking it away from others who struggle to get onto the ladder. The Centre for Economics and Business Research has forecast a fall in London property prices by 5.6% in 2017 which will therefore mean growth for the UK will only be 2.6%, compared to 6.9% for 2016. 

So what does this show us – well it doesn’t show us that Brexit fears were right or wrong. It shows us that London was overheated and already heading to a cooling off period. For the rest of the UK, yes growth is slowing but generally the housing market is relatively unscathed. No surprise right! The housing crisis is not one crisis but many mini-crisis across different regions and demographics. The good sign is that the British Bankers’ Association revealed September say mortgage lending increasing (£12bn for the month – though 2% lower than September 2015) and house buyer demand, according to the National Association of Estate Agents, rose 16% in September (38,252) compared to August. People back from holidays or a general move in the right direction – either way we’ll take it.

In a circular format we see that a decision not related to housing can be linked to housing. It is an issue that needs to be explored further by the Government. They continue to promise a detailed strategy on housebuilding and this seems to be drip fed in varying strategies for different sectors – but doesn’t seem to be tackling the “affordability”. The Local Government Association is asking that councils in England be freed from restrictions on the ability to fund new home building. I think it is obvious that this will certainly aid building more homes, just look back in time – public sector delivered the houses not private.

If you any questions or would like to discuss the above please do let me know

Many thanks
Lee

A Farmer's opinion on construction

There has been a lot of “shock” coming out of the recently released Farmer Review but in truth for once a “review” has done just that, turned the stones, poked the fat and actually highlighted actions and low and behold people seem to agree with it. It simply is described as a “dire state” of the industry. But on the brighter side, the solutions come thick and fast and one day people will look back and see the Farmer’s Review as a key turning point in dragging the industry into the 21^st Century.

Now I’m young(ish) in the grand scheme of things but it’s safe to say this Review is not the first, but hopefully the last for a while. Reviews have come and gone but actually the striking part of this one is given in the title “Modernise or Die”. I always remember reading the Construction 2025 Review which went on to praise the industry, and don’t get me wrong – yes we should, it has shown great resilience and produces high quality product but this latest Review is bold and courageous. The industry has talked about diversity, talked about modern construction techniques and many many more things but the move towards any is far from quick.

So what’s it all about. Well the Review was jointly commissioned and was always going to be a challenge of how can you create something tangible to be followed, particularly given the many challenges being thrown at the industry now and in the future. Now then, root cause:

·        Low productivity – flatlined versus 50% increase in manufacturing;
·        Poor predictability – only 1/3 of high-rise buildings are completed on time; and
·        A split industry in terms of margins, financial fragility, innovation investments and public image – everyone’s made a construction joke about the builder.

So what are the key themes:

Skills crisis

The overall report concludes, unsurprisingly, that there could be a decline of 20-25% in available labour force within a decade as older workers retire with no replacements due to significant under investment in skills. The challenges Brexit creates are unknown, however given the pressure to control the borders, there is a sensible question of will we be able to bring in large volumes of workers from Eastern Europe (say) like we did in the 2000s? It is critical we find a replacement for these skills from homegrown talent to ensure this is not an issue.

Off-site construction

How technical is construction – leading on from the skills crisis is the question of should the skills be adapting as the industry embraces innovation and technology. Should we now build off-site in a factory? The industry simply has not embraced the future like other industries and it is holding the sector back and losing growth potential due to rising “traditional” costs. It’s not a one size fits all but with Legal and General investing in modular house facility in Sherburn and Citu commencing construction on their manufacturing site (plus many more) it is clearly viable and broadens the skill base away from the “traditional” construction person to bring in people with manufacturing skills.

And all this leads to the recommendations which are summarised by Building here http://ow.ly/W55r305zpZO but the ones that catch my attention are ones previously mentioned in my blogs:

-        Bring innovation into residential sector and fund this
-        Publish a pipeline of housing developments
-        Re-engineer education sector to produce the right skills

Above all for this you have to change the governing bodies and completely refresh the sector to allow for wholesale changes to be made. You need to push and further become innovative, individually or colletively – think about centres of excellence, a great example is a Northern business that has a CoE in Northern Ireland but uses them on English projects in that area – excellence improves efficiency! Above we discuss manufacturing, well why not pre-requisite this for Government schemes or even the use of apprenticeships – really take simple ideas but don’t give people the options any more.

The options are available to those who want to change. The idea of a levy imposed on construction for those who don’t modernise feels harsh and certainly something that would be challenged but is it not the old metaphor of “carrot & stick”. The stick being the levy. BIM was imposed in a “use it” or miss out way and that seems to have worked. I’m not for more cost on businesses as I feel it sometimes hinders those you need to support but if carefully constructed and monitored then this could be a real way to change an industry effectively living in the past.

I conclude simply with a concept which to me demonstrates a change in mind set that Farmer is seeking. The concept of a Low Impact Development has been created, incorporating city farms, on-site power generation, green roofs and developed on brownfield sites. The houses are affordable, managed by Community Land Trusts, and set up in areas of higher infrastructure – near public transport and walking & cycling routes to key areas of the city. By developing low carbon and instilling a recyling mentality can create something special. None of this is revolutionary but certainly different. By developing LIDs in cities will really create something special, a community for people to be proud of. If you are in doubt of what we are talking about, simply visit Lillac in Leeds.

The housing market looks to be heading into Autumn on firmer footing

The lovely people at RICS produce a UK Residential Market Survey and the recent copy makes for good reading with the headline for me being “the housing market looks to be heading into autumn on firmer footing”. The driving force behind this prediction is the good old buyer – enquiries are on the increase and the rationale is that enquiries are on the up, therefore the market must be. A cynic could say well they are only enquiries and what is the conversion rate?   Let us not forget that supply is still tight and therefore the increase in price indicated by the survey is not a huge surprise, in fact everything happening seems to be supporting the prices increasing further – but when does the bubble start to deflate (note – not pop!). This overheated market that people discuss is largely driven by London and the South East and in truth (and from conversations in the market) it would not be unexpected if London saw a price reduction in the next quarter reflecting nervous foreign investors and the push and pull mentality of policy between affordable and social housing and high end glamour. In a modern world can we simply not have both?   In contrast to this report, a large estate agency has called for the government to cut stamp duty citing a significant decline in interest from buyers had led to a fall in house prices in September. This 1.1% decline is a warning of the market says Haart. But what this does say is even the industry cannot agree of what the market is doing.   Prices are rising but not consistently across the UK. Scotland now is the lowest riser and in fact the difference between the price rises in Scotland and the rest of the UK is the widest it has been since 2005. Maybe worries about Scotland breaking away from the UK are taking their toll?   The UK population is growing, and people need a place to live. However, many homeowners - especially first-time buyers - are finding themselves priced out of the market by the rising prices. Despite Government-led initiatives like Help to Buy, first-time buyers are finding that they're having to find vast deposits to be in with a chance of getting on the housing ladder.   So what is the Government doing? Well in September 2015 it was announced by the then Housing Minister Brandon Lewis that they wanted to build a million new homes by 2020, despite many saying the aspiration was too low. It is considered too low due to years of housing completions being below even the 200,000 target. Bodies disagree on the number of houses built each year but one thing is consistent – they are below the Government target and the NHBC target of 250,000 per annum.

 

 

 

 The numerous factors causing a shortfall are simply not being addressed:

• Construction skills shortage – since many skilled workers retrained during the recent recession. The Government in January 2016 challenge the construction industry to train more home-grown talent (having become dependent on overseas workers) – though there was no incentives to do this and certainly little support. In fact with tax changes, such as apprentice levy, further costs are being brought to the sector. The naming of foreign workers would have been an administrative burden too. In fact a recent RICS survey shows wage increases in the industry are 6% (three times the national average) as the knock on effect of low levels of labour. The solution – introduce tax breaks for training to incentivise the sector or set up joint academies.
• Planning problems – long blamed as one of the main reasons – slow, sluggish and bureaucratic. The National Planning Policy Framework was implemented in 2012 and this shows a steadily rise in detailed planning permissions since 2011. The finger now seems to have been pointed at housebuilders for holding back on buildings. The solution is clearly to determine a way to monitor the process – each side blames the other.
• The rising cost of land – a study found that residential land prices between 2000 and 2007 rose by 170%, compared to house prices which rose by just 124%. The effect was to make some sites not financially viable. The solution is the industry needs to embrace ways to make construction cheaper – like off-site construction.  

• The lack of social housing – local councils use to build more houses than the private sector, but that significantly reduced over time. Housing associations have seen an increase but not enough to fill the void left by local authorities. The solution is to release restrictions for building by both and then for them to partner in the private sector to bring forward schemes.

• And finally fewer small housebuilders – it is too early to say whether recent Government initiatives will help on this front with an estimate of less than 3,000 across the country now largely due to financial restrictions and availability being key issues to their fall. The solution may have already been provided but it is clearly support them.

There are clearly a number of factors and each one requires differing action but can easily impact each other. Three areas I would certainly tackle are prioritising spending on housing (and recent announcements may aid this) but it should be at least £2bn per year on affordable housing. Launch a National Housing Investment Bank giving loans and guarantees for new homes and lastly increase spending restrictions on local authorities.

Housing - state of the nation

After a few months of watching the world grapple with the reality of Brexit (i.e. business as usual so far) and the implosion of pretty much politics as we know it, it felt appropriate to discuss the world of housing. Now I can summarise at the start that everything that has happened in recent months has done nothing to change the simple fact – there is a housing crisis in the UK across a whole spectrum of issues as highlighted by the recent #HousingDay.

To set the scene:

·        The Government made a large number of promises as part of its Autumn conference but will they help?
·        House price growth seems to have slowed further but longer term it’s still going to keep going up; and
·        Take your earnings and multiple by 10….that’s the house price!

It was a somewhat a welcome sight to see a conservative Government finally unveiling a plan that could tackle housing but most importantly it seems to appear that it’s Theresa May’s to do list – that, Brexit and possibly what colour to re-do  the walls in the Houses of Parliament – magnolia?

The key policy change was the unveiling by Hammond and Havid of a £5billion to fund tens of thousands of homes across the UK by 2020 (just ignore the previous promise of 1,000,000 new homes by 2020 – this is different!). This coupled with planning rule changes to encourage more brownfield sites being developed on, which I personally thought had already been promised. So will this initiative solve the housing crisis – erm, no!

Solving the housing crisis needs to come from all fronts – housebuilders, local authorities (440 homes in Q3 Fy17) and housing associations. It doesn’t bode well to attack housebuilders as Javid did – it is strong to suggest land banks are by default creating a “stranglehold” without seeing the colour in the detail. Some sites are held up in options, awaiting planning and simply companies need certainty of pipeline – I’d hate to see how long a housebuilder lasts that buys land and builds and repeats. Either way at least “housing” was centre stage at the conference.

You then look at the wider economy – figures indicated construction wasn’t stalling in the “new world” but recent Markit/CIPs data suggests growth in September – due to the housing sector – which is welcome after the seven-year low in July. So investment in housing is even more critical to support the significant large construction sector – no-one wants a repeat of 2008 – 2012 and that is where infrastructure investment is needed (but that’s for another day).

Despite these figures, house price growth has slowed in September (but is still growing, let’s not kid ourselves). The average house price now stands at £206,015 – being 0.3% rise in September and the annual growth now at 5.3% (Nationwide) or 5.8% (Halifax).  Recent data suggest house prices have reached 10 times earnings in over a third of England & Wales – which is a worry statistic for new house buyers and makes me think I should be moving to a larger house if this is the case.

As always there is a difference between differing statistics but the two key points to take away from this:

·        There is ongoing growth still across all regions; and
·        The South East, unsurprisingly, still leads the pack for growth (across both statistics).

Now as a Yorkshire man, and infact looking at the North as a whole, it is good to see the levels of growth but it comes back to the underlying issue – not enough affordable housing – these figures don’t help that!

The outlook for housing is mixed, there is certainly difficulty accessing the ladder still – eased slightly by a mortgage rate cut but not forgetting the shortage of supply which will continue to constrain activity.

 

 

Generation rent is rising - problem or solution?

Well after a decent break and a long overdue holiday it feels a little bit gloomy in the world of housing (even more so than usual). I’m often one to point out the issues around supply of new houses but the effects of this are clearly becoming more prominent now with home ownership falling to levels last seen in the UK in 1986, a major new report has revealed - and it's not just in the capital where it's hitting hardest. It certainly would appear we are becoming a nation of renters – “Generation Rent”. Basically most first time buyers now need the bank of mum and dad! 

The report, by think tank the Resolution Foundation, showed the proportion of Britons owning their own home has fallen eight percentage points since it peaked at 71 per cent in 2003.

And while much of the focus on the problem of falling home ownership has been on London, double-digit falls have been experienced in Greater Manchester, South and West Yorkshire and the West Midlands - aka. Leeds, Manchester and Birmingham. It is clear, the trouble with buying a house is wide spread – so it brings us full circle back to supply and resolving the housing deficit. So will councils build again like the good old days?

A local authority can borrow money to build a swimming pool but not invest in housing stock – what an odd concept and world we live in. I’m not old enough to remember the days that councils were the nation’s housebuilder but I certainly see the sprawling estates they created around Sheffield. Yes they are outdated and yes they need replenishing but the scale of them shows it could be done. Relaxing lending and budgetary rules should allow social housing to rise again.

I work in a corporate world and therefore do not hold against large developers for large land banks and a steady supply of housing that serves to meet profit margins rather than volumes – after all they have to answer to their shareholders, a lot of whom are our pension schemes. The scale must come from other sources. Though allowing councils to borrow so they can build out their own assets is not a silver bullet. The government should focus on releasing more public sector land to increase the financial viability of council-led schemes – and also reflecting that to achieve this successfully is likely to be delivered through public private partnerships as seen in Sheffield, Manchester and London.

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 your week

Lee

Allow local authorities more freedom - let our LAs build!

“The Government must build 300,000 homes each year in England to help solve the housing crisis, an increase of 50pc from its current target”, a committee of Lords has advised. Well the number needed keeps getting bigger because year on year there is a shortage of homes delivered – basically housing is still a key industry to the UK economy. The committee also recognises that it is the public sector not private sector that will deliver the increase, though I would argue it is also smaller developers doing <25 home developments.

Two key points to me are:

1. Current government policy includes the changes to stamp duty in April 2016 and also the cuts to social rent. Both of these have had an adverse effect – an effectively the latter hits the poorest hard.
2. The current restrictions on local authorities in relation to how much they can borrow is odd! Why can a local authority borrow money to build a park (which brings in no income) rather than a house which can be sold and reinvested.

Building homes is a risky business and it is understandable that house builders want to manage that risk by building homes in a safe environment to ensure sales which as a result means certain house builders hold large volumes of land directly or under option. There has been talk of councils imposing fines on house builders who do not develop, though this potential can have negative implications, i.e. land is simply only bought at the point it is needed – that could completely change how the model works, and who knows what that would result in, but when over 50% of homes are built by 8 house builders it is clear we have headed towards an oligopoly.

The Government set a target of one million new homes built by the end of this Parliament, meaning 200,000 homes per year. It has been ten years since that many houses were built in one year; in 2015, 142,890 houses were completed. The Lords’ target of 300,000 is higher even than the consensus of what experts deemed would be necessary.

So to solve the problem of not only building houses but also building houses for those that need them you remove the restrictions on local authorities, allow them to create “housing arms” which can either work with the private sector or simply work alone to bring forward regeneration of land within their city. This has the benefits of rejuvenating stale parts of the city. It can help improve authorities invest in apprenticeships linking to local schools to train people, thus helping towards skill shortages and to top it all off a local authority will be far more inclined to build affordable social housing.

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 your weekend

Lee