The Housing Series: Solving the housing crisis... but at what cost? Part 1

The UK housing shortage is a major problem, one that the government has continuously attempted to rectify with policy after policy, year on year. But are they causing more harm than good? In this UK Housing series I am exploring specific issues that seem to pass us by but have a great impact on the standards within our society.

A little while ago, an issue was brought to my attention by an architect I know regarding planning regulations for flats. If the existing building is commercial and being converted to residential, then under permitted development, it does not have to conform to the minimum requirements set out by the government planning authorities. 

The issue around this is that to some it is seen as a way to provide much needed housing to the UK, to others it is a way of providing developers with the opportunity to profit from selling larger numbers of properties in a space that had it been a conversion from an existing residential property or a new build, far fewer properties would have been allowed within the area. Either way, the consumer is the one who loses out. 

An article in The Independent spoke of the unjust nature of this where properties in the London Borough of Barnet were being converted from an old council office building into residential flats of approximately 16m2 in size - the equivalent to a Travelodge hotel room. To put this into perspective further, to meet regular planning conditions, the minimum size for a studio with a shower and no bath is currently 37m2. 

Not only does this minimum standard not apply to commercial properties but it does not apply to the section 106 requirement for affordable housing either. At a time where not only do we not have enough housing in the UK, but we do not have enough affordable housing, scrapping this requirement is understandable as it likely comes as a relief to the developer and adds incentive to take on these projects. However, should this really be a consideration or should we be considering the needs of the end user?

Whilst there are constraints that will trigger the need for planning permission, developers will be sure to avoid these in order to get around any red tape and maximise their profits. There needs to be a balance between providing more, suitable housing and ensuring that living standards are maintained in a safe way. 

Both the Construction Industry as the professionals and experts and the government have a duty to ensure that homes are safe, comfortable and appropriate for those living in them. The government should be ensuring that there are safeguards in place so this is achieved and allowing properties of 16m2 for an entire home to me suggests they are currently failing. There is a major shortage of housing in the UK but instead of cutting corners and providing ill thought out solutions, we need a considered, realistic and achievable plan that is less to do with politics and more to do with solving the needs of the UK population.

The Autumn Budget 2016 and the UK Housing crisis

Wednesday's budget has a number of implications for the construction industry in areas including much needed housing and improvements to the transport network throughout the UK. However, will these announcements have the positive impact on the UK housing crisis we have been hoping for?

The Government has announced it will build 40,000 new affordable homes. But what does this actually mean? Whilst 40,000 homes may seem like a lot it will actually be an overall reduction of approximately 13,000. According to the Office for Budget Responsibility (OBR) as a result of Wednesday's budget, house building is now likely to slow. There are a number of announcements that will result in house building increasing, but with others causing a slowdown, the overall result will be a fall of 0.2% in residential investment growth.

The OBR continued to say the announced £1.4bn increase in grant funding for affordable house building would partly offset the fall, in addition to the disposal of public land commencing sooner which in turn would bring the construction of 10,000 homes into the forecast period. However, this will not necessarily increasing funding overall. The real issue here is that the wording suggests a substantially large number of houses will be built but the reality is that the governments target of 1 million homes by 2020 is getting further and further away.

The first policy announcement relating to Housing was that Housing Associations will be able to spend grants on building homes for rent. The £1.4bn that is being made available for affordable housing will be given to Housing Associations, however, the plan is that Local Authorities bid for a proportion of this fund to put towards affordable rent, shared ownership schemes or rent to buy schemes

The second was that mandatory “Pay to Stay” measures will stop and therefore will no longer mean increased rents for higher income council tenants. This is an interesting one as previously those who earned £60,000 or more could be charged market rate rent if they lived in social housing, if the landlord decided to. It was then suggested that it would become mandatory for those who earned £30,000 (or £40k in London) to pay market rates for rent. It has now been confirmed that it will not be happening, and left to the discretion of the Local Authority. However the government is looking at ways to ensure that those on higher income contribute more to social housing. So what does the removal of the Pay to Stay policy mean for UK Housing stock? In reality, not a lot. It will simply mean a reduction in revenue to fund discounts for the right to buy scheme.

In addition to these policies, there will be a £3.15bn fund to build 90,000 new homes in London. Again, this sounds great, but these will be built over a long period of time, with no exact timeframe determined. The good news is that a priority for this money is to make housing available to low income families at a below market rent, as well as properties with rent restricted to one third of the average income of a typical middle income family.

Additional funding and house building policies aside, the government has not changed the tax rules around buy to let properties and mortgage relief, however it has decided to remove estate agent fees completely. This will mean two things. Firstly, with no change to the tax relief on second homes, less people are buying properties for the purpose of buy to let. The benefit of this is that there is a larger supply of property for those trying to get on the ladder, however this is obviously if a) they can afford the deposit and b) if they can get a mortgage - two key points that are often skimmed over by the Government. The drawback here is that for those that can not afford to buy, there will now be a smaller pool of rental properties on the market. Secondly, the scrapping of estate agent fees is likely to be a good thing for renters not having to pay for contracts to be printed however we should note that these costs are likely to be passed on to landlords and in turn, to renters in the form of increased rent.

All in all, it is good to see more funding to being allocated to housing but the reality is that there are less houses being built than previously forecast and if it continues in this way the government will not hit their target of 1 million homes by 2020.

The uncertainty of Brexit and the impact it is having on the Construction Industry

With the headlines full of the recent ruling against the government in the latest segment of the Brexit saga (pre results of the US Election), I wanted to think about what it will mean for the construction industry and what it already means.

In the wake of the Brexit result, I was at a networking event where the main speaker touched upon Brexit - a topic people were keen to avoid in order to minimise the risk of an argument or upset. The speaker had one clear message for the industry: "We must not talk ourselves into a recession". So far, so good. We seem to be doing ok. There are mixed reports regarding the housing market but projects are going ahead and redundancies aren't widespread in the industry. Which is obviously great news, but with projects such as Hinckley Point C going ahead, the decision on the Heathrow expansion one step further, it should make us question where we are going to get the labour from in a post Brexit Britain. 

Whilst there is no immediate effect in terms of law and visa retrictions, EU migrant workers have started to move back home unsure of how the next few years will pan out. The result of this may be that we see a drastic change in the make up of the construction industry. The main concern around Brexit is that the UK may lose access to the single market, a key provider of construction labour. It is estimated that 15% of the current construction workforce is European labour.

A further shortage of labour, in addition to the pre-brexit figure of 182,000 vacant construction jobs, would likely mean a rise in wages across the industry. As I mentioned in a previous post, the rail industry has already seen huge wage rises due to shortages of workers and engineers building new lines and tunnels resulting in a staggering increase of 74 per cent between 2012-2015.

And its not only a shortage of labour that is affecting the Construction Industry. We are already seeing an increase in costs of materials as a result of the weak pound. Steel prices are on the increase, as are costs of any materials imported from abroad and this means now that any variations on existing projects are likely to cost the contractor and the client more as costs are passed on. The result being that projects risk going over budget and an increased risk of projects being put on hold.

This kind of wage increase in conjunction with the rising cost of materials and the projected flat lining of growth within the sector for the fourth quarter signals an increased likelihood of problems for the weaker players in the industry. However it is by no means all bad news.

The uncertainty post Brexit was thought to signal doom for the industry. However there are several positives to come out of it. 

 

1. Housing: Inward investment due to the weak pound means that UK property is cheaper to overseas investors, meaning there is still the demand for UK property not only from domestic buyers but also foreign investors. The housing market saw an increase in growth in the third quarter of 2016 which has propped up the industry as a whole. With the government falling behind on their target of 1 million homes by 2020, the autumn statement should provide the sector with the boost it needs to stimulate growth with announcements likely to include plans for more local authority house building as well as build to rent homes. 

 

2. Infrastructure Projects: With the confirmation of infrastructure projects such as Hinckley Point C and the Heathrow expansion as well as HS2 and Crossrail 2 in the pipeline, even more jobs are being created. Whilst there are issues around this because of a shortage of labour, this is still a significant boost to the construction industry with these projects said to be worth around £400m. This will be especially beneficial in the areas where HS2 and Hinckley Point C are going ahead for job creation.

 

3. Is there scope for a deal with the US in this new Trump era? Only last month, Trump representatives claimed Britain will be offered a free trade deal before the rest of the European Union if the Republicans win the US presidential election, which they have. As with Brexit, only time will tell what the outcome of trade deals between the UK and the US will be but depending where you sit, this could be good news.

 

There is no definitive answer as yet and it is unlikely that there will be for some time until Article 50 s triggered, negotiations get under way and eventually conclude. Until then, it is important to keep the words of the speaker in mind... "We must not talk ourselves into a recession".