Select Committee on Environmental Audit First Report


150. The focus of this inquiry is the house building industry, rather than the construction industry as a whole. This is an important distinction. Whilst there are some major players within the house building industry, the majority of house building companies produce a small number of units. Only the top three house builders in 2003 built more than 10,000 units out of a total of 140,000 dwellings. Many of the larger national companies actually work through local operating units, and small companies often dominate the market in their local area. This means that the house building industry is highly fragmented. Nor does the industry have a permanent customer base to compete for: house buyers are rarely repeat customers which does very little to create an incentive for builders to produce a high quality product. This is reflected in the findings of CABE's recent survey looking at the design quality of a 100 new housing schemes, of which only 17% achieved a Good or Very Good rating.[143]

151. The market for new homes does not function in favour of buyers as there is little or no competition for customers for new homes. In addition, developers often control production rates, especially on large developments, to prevent depressing the local value of their product. The Barker Review highlighted the often significant time-lag between purchasing a piece of land and completion of any development upon it, concluding that house builders' profitability depends on obtaining valuable land rather than building a higher quality product in ever more efficient ways.[144] The Review went on to say that private house builders are catering less and less for first-time buyers and those in need of affordable housing:

    "In 2001 71 per cent of homes built for the private market had three or more bedrooms, whereas only 34 per cent of homes built for the social sector had three or more bedrooms. The types of units delivered in 1991 also reflect a predominance for three or more beds in the private market and one and two beds for the social sector, although the amount of private three bed dwellings being built has risen from 55 per cent in 1991 to 71 per cent in 2001. This suggests that rather than producing more, smaller homes to respond to demand and to fill any gap left by reduced social build, the private sector is tending to build even larger units in terms of number of bedrooms. Private house builders are therefore catering less and less for first time buyers."[145]

It added that:

    "Low output in the short run appears to suit many playerslocal authorities, home owners and arguably the industry. The only people it does not suit is the homeless, first time buyers and those inadequately housed".

152. Furthermore the Barker Review pointed out that the house building industry is very risk averse and reluctant to make long term fixed commitments. It concluded that this results in a "low level of investment in capital-intensive technologies, innovation and in the skills of the workforce, who are frequently employed on a sub-contract basis".[146] Sir John Egan told us about companies making up the house building industry in his evidence:

    They find it difficult to get planning permission. They have economic cycles where their product is difficult is sell […]. The ones that have survived have pared themselves down to a relatively comfortable life, but that is not the way in which you stimulate innovation. These are comfortable people doing a comfortable job.[147]

153. The environmental implications of how homes are built should therefore be seen within the context of a very fragmented and restricted market, where most of the players are small and risk averse. There is little pressure to innovate or improve environmental performance, much less to invest in relevant skills. This was brought to our attention by the World Wide Fund for Nature (WWF) who told us: "It has become so obvious that this is a supply driven industry, where consumers have no choice, have no say in the quality of the product that they effectively are forced to buy, that there is little point in channelling resources at this moment in time in trying to inspire greater consumer demand, because it would simply lead to greater disappointment".[148]

154. WWF gave us the example of the Telford Millennium Community where there were bids from ten different developers to work to EcoHomes "Excellent" standard plus additional local authority requirements. This is despite most of these same developers normally building to below EcoHomes standards as a matter of course. There are developers and developments that testify that it is possible to achieve high environmental standards. However, the industry seems unwilling to transfer the standards that it is able to meet when required of them, such as when working with English Partnerships and the Housing Corporation, to other developments. This highlights the need for measures that push the industry to improve its record across the board.

155. There are house building companies who do stand out from the rest on this issue. WWF carried out a survey, as part of its sustainable homes campaign, of the UK's 13 largest listed house builders. This found that there are some encouraging examples of good practice. Countryside Properties, who gave evidence to us, was found to be the best performer. They explained how their approach to building homes adds to the overall quality of development. They also found that their good track record of bringing developments through the planning process ensures a steady supply of land from landowners and a good relationship with local authorities.[149] In addition, the company's approach to sustainable development attracts skilled employees in an industry where recruitment has been recognised as a significant problem,[150] although even they find there is a shortage of suitable candidates available: "it is hard finding people".[151]

156. While we are encouraged by the attitude of some house building companies the majority are nowhere near achieving the kind of record with regard to environmental performance we would consider acceptable.

157. When questioned about its approach to improving the environmental performance of the house building industry, ODPM told us it will be encouraging sustainable construction methods and improving the design of buildings by setting up demonstration projects to show the industry what can be achieved. The emphasis placed by ODPM on using a few developments as examples of best practice is clearly not enough when we are told that builders are already quite willing and able to meet higher environmental standards when forced to do so. More needs to be done by ODPM to address this.


158. The lamentable lack of ambition within the industry was nowhere clearer than in the evidence presented by the House Builders Federation (HBF). The HBF presented scant evidence that they were in any way enthusiastic about the proposed changes to Part L of the Building Regulations. Indeed they had little to say on the subject, which is surprising given that these changes are something that all those involved in housing must have been aware of since April 2003. When questioned about sustainable development, HBF were again very reticent. They told us they had begun to look at how they promote sustainable development. Given all the focus in the last year and a half on the housing sector and its performance, this shows at the very least a lack of foresight. We were also very surprised to hear the HBF tell us that they were not yet able to commit to improving the skills of the workforce that will be needed to meet increased housing targets because "there had not yet been a long term commitment to a strategy to increase the output of housing in this country".[152] This again shows a lack of willingness to take on any kind of agenda for innovation and improvement within the industry.

159. Given that house builders stand to make enormous profits from the proposals contained in both the SCP and the Barker Review it is entirely unacceptable that they show such a reluctance to make the industry more progressive and to limit its environmental impacts. More seriously this implies a failure to understand the growing public and political concern about sustainability; and also reveals the failure of the Government's attempts so far to raise the profile of this issue with the industry. The apparent reluctance within the House Builders Federation to acknowledge the need drastically to improve the environmental performance of the building process and of new houses is a matter of serious concern. It is particularly worrying that the current political drive for a significant increase in house building coincides with a shortage of skills in the industry. In the absence of commercial pressure to raise the industry's environmental performance we believe that the Government has a duty to intervene ensure adequate environmental standards.

160. Since giving evidence to us, the HBF has presented further information on its proposed Sectoral Sustainability Strategy. This strategy is welcome, particularly the proposal for establishing Key Performance Indicators against which progress within the industry would be measured. We hope to see this translated into action. However, in light of the HBF's evidence session with us we feel obliged to register a note of scepticism.


161. The Barker Review concluded that house builders did not generally hold an excessive supply of land that could adversely affect development rates, although there was some indication that they controlled production rates in order to maintain house price increases. Consequently, the Review recommended that it would be desirable for planning permission to have lower set time-limits for development to take place and to include agreements on build-out rates. The Review also noted that house builders do not have to deliver a good product or high levels of customer service to win market share and that the industry must improve the quality of its customer service. Also acknowledged by the Barker Review was the fact that the impact of increasing the supply of land would have a very limited effect on housing supply if there was little innovation or a shortage of skilled labour. Improving local acceptability of development was also highlighted as a problem, one which the Review suggested could be improved by better quality of design, ensuring that developments enhance the existing built environment, are sustainable and bring new services to the local community.

162. It is therefore hardly surprising that the overall conclusion of the Review was that the industry is going to have to improve the way it operates in order to increase the supply of housing. What was surprising was the Review's approach to improving the house building industry's performance. As pointed out by Friends of the Earth, "the final set of recommendations [within the Barker Review] are essentially a voluntaristic approach to persuading the industry to do what would be desirable, unlike the planning system, where major reforms, radical reforms are suggested".[153] Indeed, the extent of the measures proposed for improving house builders' performance appear very modest compared to the drastic changes proposed to the planning system. This is of particular concern as it is very clear that there has been ample market opportunity for over a decade for developers to increase the supply of affordable housing, something they have failed to take up. It is unclear to us how increasing the supply of land available to private developers, as proposed by the Barker Review, would in any way compel them to bring forward proposals for smaller dwellings, at higher densities, to reverse the trend in reduced affordable and social housing supply.

163. The Review recommends that the HBF, develop a list of strategies or codes to address a ream of issues: customer satisfaction; fair contracts, removing barriers to Modern Methods of Construction; uptake of apprenticeships; the external design of new homes; and a best practice guide for compensating householders for development in their area. The Review also recommends that the Government should consider policy options to improve the performance of the building industry if completion rates do not improve by 2007, and suggests that the Office of Fair Trading should carry out a wide-ranging review as to whether the market for new housing works well for consumers if customer satisfaction levels do not increase substantially.

164. Whilst the Review recognises the resistance to change that characterises the house building industry, none of its proposals would compel them in any way to improve the environmental performance of their product or to increase the supply of affordable housing. The Government should make it clear that it will oblige the housing industry to address the way it functions if there is no clear and significant improvement in housing quality and affordable housing supply by 2007, at the latest. The housing industry as a whole will do very little unless forced to, which the Barker Review has failed to recognise. Unless the industry improves its standards it should expect to be required to operate in an enhanced regulatory environment.

143   CABE, Housing Audit: Assessing the design quality of new homes, October 2004 Back

144   Barker Review of Housing Supply: Delivering Stability: Securing our future housing needs, Final Report, March 2004 Back

145   ibid Back

146   ibid Back

147   Q 614 Back

148   Q 41 Back

149   QQ 249-252 Back

150   Q261 Back

151   Q268 Back

152   Q 302 Back

153   Q 15 Back

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Prepared 31 January 2005