The latest Housebuilding Report by Knight Frank reveals a boost in output, concerns over the end of the Help to Buy scheme and predictions that factory-built homes will finally have a big impact on supply.
It says that the industry has responded strongly to the demand for new housing, increasing output by 55 per cent over the last five years. The number of new dwellings created during 2016-17 stood at 217,350. This includes conversions and change of use, such as permitted development rights, which have helped turn former offices and other commercial space into homes. The Office for Budget Responsibility say the annual figure will reach 257,600 this year, plateauing at plateau at about 240,000 between 2020 and 2023.
Patrick Gower of Knight Frank's Residential Research team says: “Much of the increase can be attributed to an improving economic picture, though continued support for Help to Buy has enabled some buyers to circumvent the ‘deposit gap' when buying a home, thereby underpinning confidence among developers to commit to large schemes. The picture across the UK is changing, with a more evenly spread rate of growth across the country, in contrast to growth being concentrated in London and the South East. This more fully reflects the economic recovery seen outside London, especially in major cities.”
Knight Frank's residential researchers conducted a survey of more than 100 developers, ranging from FTSE100 companies to firms building fewer than 10 homes a year. It reveals that housebuilders are generally upbeat about the opportunities to build more in the coming years, although the majority feel that meeting the 300,000 target every year by 2022 will be a stretch. Building 200,000 to 250,000 homes each year is achievable, according to 61 per cent of respondents.
Planning was identified as the main barrier to speeding up housing delivery, although the proportion of builders identifying the planning system as a hurdle has fallen since last year.
Regions pinpointed as offering the greatest opportunities for new housing during the next three years show the South East at the top of the list followed by the West Midlands and Outer London. Yorkshire is on a par with Scotland and is towards the bottom of the list with Wales and the North East showing as the least favoured areas for developers.
Knight Frank say that housing supply has become more dependent on a small number of very large developers and, despite an increasingly favourable policy environment for smaller companies, responses to the survey suggest most plan to build the same amount of homes or fewer over the coming 12 months.
Looking to the future, factory-built homes are gaining traction amid fears of a shortage of skilled construction workers due to Brexit, an ageing workforce and the rising costs of traditional building materials, particularly bricks.
Respondents to the Knight Frank survey were sceptical about the impact modular construction on housing supply in the short-term but 90 per cent said it could boost it in five years' time.
The survey also showed that large-scale developers are fearful about the Help to Buy equity loan scheme, which is due to end in 2021. Since it was introduced in 2013, around 160,000 homebuyers have taken out an equity loan and 80 per cent were first-time buyers. Eighty five per cent of big firms said ending the scheme would have a negative impact on the supply of homes they were able to deliver. In contrast, only a fifth of small housebuilders say that their production levels will fall.
Just over a third of all respondents believe the scheme should continue indefinitely and two-thirds said it should end with most favouring a tapered withdrawal.
Asked for their opinions on Brexit, the majority of those questioned said that an uncertain economy was the greatest risk, followed by labour availability and access to materials. London-focussed developers are likely to be disproportionately affected by labour availability because more than half of the capital's construction site workforce is from overseas.