Housing – The Digital Revolution
There is much dispute about why Britain is not building enough houses, but almost everyone agrees that the over-dominance of the big house builders is a problem. Even many of the big house builders agree.
Currently, a few large firms dominate the market. Just eight companies were responsible for half the houses built last year. Small and medium-sized house builders which includes those that build fewer than 500 houses a year, were responsible for less than a quarter of the output.
The Government has made clear its desire to build one million homes by 2020 including 200000 starter homes for first time buyers. With public sector building not the favoured option, it is the private sector that will have to deliver - and it has not consistently built this many homes in a year since the 1930s, when the market was dominated by small builders. To return to pre-recession levels of 180000 new homes per a year, small and medium sized firms need to return to the market is substantial numbers.
Small local builders are ideally suited to build-out small sites, using local labour and materials. This circular business model is ideally suited to drive local jobs and growth but this is not a model that is compatible with the larger builders who need economies of scale. The big builders bank land and eke out supply so that prices stay as high as possible. Unsurprisingly, the houses they build are intended to turn a profit rather than meet social need.
George Osborne’s Autumn statement included the announcement that the government “chooses to build” and will double the housing budget to £2bn, reforming the housing system and pumping £7bn into building 400,000 more affordable homes. According to data from the Land Registry, UK house-prices rose by 7.2 per cent in the year to September, with “Rightmove” predicting a price increase of 30.2 per cent by 2019.
While increased demand for housing has undoubtedly come as a positive development following the recession, without an adequate supply of new homes, this trend risks pricing many out of the market. In fact, the National Housing and Planning Advice Unit suggests 290,500 additional homes may be needed each year until 2031, though the Office for National Statistics, reports that 2013 saw just 109,370 housing completions with this number likely to be circa 130000 from 2015.
There is no evidence that we can significantly increase the number of new homes we construct without the wider participation of small builders and this is now a very high priority for all those involved in the sector.
The key issues restricting the participation of small builders are:
- Access to Finance
- Land prices
- Cost of regulation and bureaucracy
- Skill shortages leading to higher labour costs
The Government at national and local level are committed to do everything possible to encourage SME’s back into the market. The Government has also announced a range of input and demand driven initiatives to drive housing delivery and increase home ownership which is a key priority of the current Government