How Government initiatives impact SMEs in construction

Another week has passed away and I actually heard someone say “it’s nearly Christmas” – how depressing, but even more so was then realising my wife has already started Christmas shopping! Depressing resonates in the industry at the moment with the consultancy framework changes and the affordable housing exemptions.

The consultancy framework sounds quite glamourous, surely most things do with consultancy in the title but the government’s troubled framework is about to be launched with 23 opportunities valued at approximately £2.9bn. Now the change of the framework from 6 to 23 is apparently to aid SMEs which I don’t totally get as they will still be competing with the large behemoth firms now I guess the upside would be boutique specialist firms that can really impress on a small section of the framework.

The whole framework has been fairly comical – first UK SBS left the management to CCS after controversially axing the procurement process and then there was the high court challenge by Turner & Townsend and then heavy criticism for no SMEs being awarded a place in the first round.

The framework will be split into 23 lots - one lot covering the whole of the UK, two covering overseas work, and 20 covering four individual disciplines across five UK regions. The current procurement timetable expects the framework to go live in March 2016 - nearly three years later than originally planned.

So that’s point one but then we have the small sites affordable housing exemption that was recently thrown out by the High Court. Building some sites requires a level of income, particularly a large number of small developments built by SMEs and to suddenly find out a certain percentage of the site needs to be affordable renders the site uneconomical! This scenario happened when recently the High Court made a landmark ruling that overturned the small sites exemption from affordable housing provision. It was a strange ruling given developments of 10 homes or fewer were excluded from the requirement to provide or contribute to affordable housing.



It does come as a somewhat humiliation to the DCLG who did inadequate consultation on the affordable housing provision. The small sites exemption was intended to speed up the planning process for housing, support local builders and reflect the difficulty of stacking up smaller developments. This ruling effectively renders many sites to potentially be abandoned.



So in the modern day where we should be encouraging our #SMEs there are two examples here of how they suffer. The framework at least has changed and will potentially help but as for the wider market for house builders there will need to be a revisit to whether a site would be viable without exemption from affordable 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 the weekend

Lee

The Government is moving (slowly) in the right direction on housing

I’m not very political and over the last few elections have flipped between who I vote for, focusing on the promise and past delivery. The Conservative government is pushing forward a radical policy agenda - nowhere more so, perhaps, than in housing and to me it is good to see that high on the agenda is home ownership (via various initiatives), holding housing associations more to account and getting rid of initiatives that added nothing. Everyone know about the right to buy policy but changes to zero carbon and removal of the housing association’s rent settlement were post-election surprises.

A recent PwC report showed that home ownership is going backwards as we enter generation rent (available PwC Generation Rent report) and is at its lowest level for a number of years – though people still desire to own their own home.

The Conservative manifesto pledge was to build 200,000 starter homes, sold to first-time buyers at a 20% discount to the market rate. The original thoughts around this was that the homes would be built on former industrial sites and surplus public land however this now appears to be a requirement heading for all “reasonably sized” sites, effectively the new “affordable housing” obligation on private developers. The details will be included in the Housing Bill, so let’s wait and see but sounds like a U-turn to me.

Housing associations are rightly concerned about right to buy. The track record for delivering more housing stock is low and if you increase purchases this will dwindle the stock altogether. An even worse problem and although statistics show the waiting lines for social housing is falling, that’s simply because people have been told they stand no chance and therefore removed from the list.

The push and drive of the Government has helped, don’t get me wrong, with the builders’ finance fund for example which has been designed to restart developments of between 5 and 250 units. Its main objectives is to help smaller developers and is open for draw down up to 31 March 2017 – get in while you can.


We cannot forget that housebuilding was at its lowest in a significantly long time and with initiatives such as Help to Buy and the reforms to the planning system under the National Planning Policy Framework, the housing market has returned. There is work still to do to increase supply to satisfy demand but one step at a time ey! You need more homes built for people who need them in places they need them. Is that too much to ask!

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

Solutions to housing but do they deliver

Over the past few weeks I have had the privilege of reading the submissions for the Variety Yorkshire Residential Awards and the one striking point is that whether you are a national house-builder, local house-builder, a PLC or a local SME that everyone is being increasingly innovate in how they deliver housing. Since 2014 there has been shift in the attitude to towards solving the UK’s housing supply problem and actually become a key political talking point during the 2015 election (though that feels a lifetime ago!). The overall crisis of affordability and ultimately supply continues to rumble but discussion around solution is becoming increasingly common.

 

So what do you tackle first? Well most people you talk to say the price, the market continues to rise ahead of wage inflation and those in London and to an extent the regions simply cannot get on the property ladder – not because of the banks but because the deposit far outstrips most twentysomethings savings. Affordability is linked to supply, while supply is low prices will rise. So how do you get close to building 250,000 homes a year?

 

• Help to Buy: Everyone has heard of this and to be honest it is performing well in driving housing sales. It was also good news that it has been extended. It is estimated nearly 40,000 homes have been sold under the scheme and supports first time buyers onto the property ladder. There is an argument though that although it has kicked started and invigorated the market it’s not solely going to solve the issue.
• Small developers fund (“SMF”): I’ve said before that national house-builders don’t need too much help as they already do things on such a grand scale that they must be doing something right. Small and medium house-builders however still struggle to secure financing. The SMF will provide loans that is hoped will unlock 15,000 homes but the life of the fund is too short to really kick start much and this needs rethinking as financing is the greatest challenge to a SME yet they have potential to unlock land that large house-builders deem unviable. In all fairness simply an extension of the funds life and greater promotion, even targeting companies would be the best idea.
• Garden Cities: We’ve done then once so let’s do it again. Sounds such a dream place to live, a garden city but in reality it won’t solve the problem particularly when the Housing Minister stated the Government is unwilling to show its support. Now I think if you throw support behind and select appropriate sites, i.e. those for commuting to London, Birmingham etc then you can create something special and the scale of them attracts the national house-builders.
• Increase density: You could follow suit with London where residential now is followed by the word “tower” – land is limited so simply build more. It works in London where there is a need for smaller apartments close to the busy business districts or for those who commute from the countryside but would it work in Sheffield, Leeds or Newcastle to the same extent. Doubt it!
   

There are many options that could help solve the current predicament but many suggested ideas are limited in the time available to them but only provide a short term solution with few offering large scale help. Created a drive behind public funded housing, like the good old days, seems an expensive but longer term answer. It needs funding to get it started but once the churn starts then it could have legs. All the above though miss out one person, the community. If a community don’t want a development they will do their best to stop it. Working with the community more closely from inception can mitigate this and allow developers and communities to better the community.

 

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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Sunday morning thoughts and reflections

On a gloomy Sunday morning what better things to do than reflect on the world! This week we have commenced reviewing the submissions to the Yorkshire Residential Property Awards and I’ll you if people say residential developments are boring they should read some of these – certainly some high quality submissions but I’ll say no more and you’ll have to wait until the winners are announced in October. We have also been asked to host an event for women in construction – it makes me think to previous events we have hosted ourselves in the sector and to be honest you struggle to think of women in senior positions in construction. In this day and age that can’t be right but I guess is there the role models to make women want to enter what has historically been a male dominated sector.

Construction industry leaders from across the sector have urged employers to do more to promote and encourage women into the industry and into leadership positions. The challenge I see is that is their currently sufficient reinforcement of success and engagement in the industry for women. I have worked with a number of women in the industry who are more than capable of doing the role they do and they do it with significant success but is there the profile around it? Given there is research showing women produced three times better returns than men in listed businesses makes you think why would you not want to encourage more women into the industry.  The industry needs to take ownership of this and drive it continually forward.

But there is even more to think about in the industry which seems to have enough issues to keep an army busy for years! Firstly I am surprised by the attack David Cameron has started on overseas money. Yes he means well – we need to be more transparent but let’s be honest most overseas money coming into the UK is from reputable sources and is helping fund the likes of PRS – which in turn helps on the housing crisis. It resonates strongly with me due to a charity I am involved in that this negativity does nothing but damage reputations of good honest people. The message is clear from Mr Cameron “we need to stop foreigners owning so much London property and inflating prices to the point honest British folk can’t afford to live there” well I do disagree strongly for the points raised above.

And from blue to another with Boris Johnson drawing up plans for fixed targets of around 25% for affordable homes on major sites in London in a move aimed at speeding up development in the capital. The problem though is that 25% is below the 35% to 50% targets for affordable homes adopted by London boroughs. So why would we take a step back? The simple fact is in London to get on the housing ladder takes either luck, family support and a lot of saving so affordable homes are needed. The flip side though is that some schemes are likely to be unviable with more than 10 – 15% affordable homes – so does this target not only move things in a worse direction to what is already adopted but could also make some schemes redundant – much need homes redundant.

 

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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Good and bad news for the construction sector

There is a good feeling about returning to work feeling refreshed after a few weeks off work but sadly the feelings around the construction and housing sector aren’t. After spending a week enjoying the sights and amazing buildings in Northumberland and Scottish Borders it is regrettable to hear that the construction adviser role has been axed by the business minister Sajid Javid – which ultimately raised concerns about the delivery of Construction 2025.



The Construction 2025 includes four specific targets, a 33% reduction in the cost of construction, a 50% cut in greenhouse gas emissions in the built environment, a 50% cut in the time taken to build, and a 50% cut in the trade gap that exists between construction exports and imports. But now I am concerned that given the leadership council has been reduced from 30 to 12 and the adviser role axed that delivering this is unlikely. This is summed up effectively by Graham Watts, chief executive the Construction Industry Council, said: “The future of Construction 2025 now is ambiguous, and I think it’s likely the specifics will be buried. There will be new targets and new objectives - essentially they’ll move on. The industry needs some clarity on this as soon as possible.”



It hasn’t all been bad news after it was revealed there could be twice as much brownfield land in England and Wales than official government figures have suggested, raising the prospect that many more homes than expected could be built on former industrial sites. To me brownfield land is a useful resource to help deliver the homes needed for the country but there is still the issue that planning is too complicated and time consuming.

But the second piece of good news was the plans to grant automatic permission, in principle, for homes on brownfield sites that are identified in a new statutory register of brownfield land. This effectively gives automatic planning permission – sounds good but also extremely dangerous and surely there needs to be some element of checking a development before letting a developer go full steam ahead. So it is welcome news but more details are needed.

There is a need for land to become available quicker and therefore I am all for the changes to the permission process but I still think there needs to be an element of checking otherwise you run the risk of people taking advantage. These plans should help unlock areas that need redevelopment but remember these sites are usually contaminated land or need significant infrastructure investment and this needs careful management to ensure it is fit for purpose. It’s all a good move and things are in the right direction but let’s just be sensible about what developments we simply rubber stamp.

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

What can be done about housing?

It is no surprise that at the beginning of tenure is the best time to make changes and the government has the opportunity to really do something about housing. The manifesto and discussions since have made it clear housing is on the agenda but without the housing bill we lack the full detail. Brandon Lewis, having been reappointed, does give some stability to the industry but even more need for a quick action plan.

So where should the top team be focusing its efforts? With the introduction of the NPPF and the economic recovery, the level of outline consents granted is already running at around 240,000 homes per year, nearly double the actual number of homes being completed. However, the challenge is turning the outline consents into actual homes. Surely this can only be addressed with wholesale changes to the complex planning system.

The government can tackle certain areas that will help housebuilders deliver more but they will need to take bolder steps on housing delivery, such as re-appraising parts of the green belt. Any changes to the green belt will be unpopular but why can’t England follow the approach taken north of the border where green belts are reviewed every time the local plan is reviewed. Yes let’s focus on redeveloping brownfield but we can sensibly look at green belt.



On social housing we heard a pledge of 275,000 homes over five years which is better than a kick in the teeth but given the tight constraints on funds will there be sufficient funding and while you are building the “right-to-buy” scheme means housing association stock could reduce with tenants taking advantage of low mortgage rates. On top of social housing, a further 200,000 starter homes for which there is little more detail.



Radical changes are needed. We seem to live in a society where the middle class have been priced out of the market – how can it be right that those on the dole get more? The introduction of a national housing target (rather than simply talking about it), and draw up an implementation plan to meet it. What is this number? Well widely believed that 200,000 is a good starter per annum. One that is opportunistic for all walks of life – SMEs, national housebuilders and housing associations. Draw on industry experience and public sector to ensure the plan benefits everyone and focuses on the community and please promote the housing minister to the cabinet and make them accountable.

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

The housing crisis that the government faces

Another day another budget and it certainly was a busy one. As an individual there was some good news and some bad news but the listed housebuilders were in for a hit with up to 7% wiped off share prices on the back of news that tax relief on mortgage payments is to be restricted to the basic rate of tax for those buying to let. It’s like full circle given the share jump they received following the Conservatives forming a government.


This recent fall does come off the back of Mr Osbourne committing £6bn to Help to Buy until at least 2020. The first chunk of £1.5bn has been delivered to the Homes and Communities Agency and is ready to roll. The scheme that gives equity loans to help individuals get on the property ladder is boosting the economy by driving house building. The key point I see is that by committing to 2020 you provide the certainty to housebuilders to recruit which benefits their own supply chain too.


But while housebuilders’ share prices have risen sharply on the election result, the Conservative Party manifesto contained no pledge to meet rising demand by setting a target to build more homes, as called for by many in the sector and this is still the case – unless it is addressed in the Housing Bill.


Certainly there is little doubt about the scale of the housing crisis that the government faces. The latest housing supply projections show that 210,000 new homes are required across England each year to cope with the number of new households forming every year. Once the accumulated backlog of past undersupply is factored in, housing pressure groups agree that the UK needs at least a quarter of a million new homes each year. Just 141,000 were built in 2013/14.


Against this backdrop, many people are putting off setting up home altogether. Figures published by the Office for National Statistics earlier this year showed that nearly a third of a million households contain more than one family.


Among young adults, nearly half of whom live in private rented accommodation, the proportion of 20 to 45 year olds putting money aside for a home deposit was down by 6% to 43% last year, according to a survey published last month by the Halifax bank. Home ownership is at its lowest level since 1985, according to recently published Department for Communities and Local Government figures.


So what do we need well its simple (I think):

• National housing target;
• Housing minister to report on progress on nationally significant sites and against the housing target; and
• More funding for 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 the weekend

Lee