Memorandum by the Construction Products
Association (CRED 23)
The Construction Products Association represents
the manufacturers and suppliers of products to the construction
industry. Through its major company and trade association members
it represents more than 85% of the £40 billion industry in
the UK.
Of the three issues raised in the Call for Evidence
for this Inquiry, the Association only wishes to comment on the
first point—achievement of the government's housebuilding
targets, both for market and for social housing.
SUMMARY
— Private sector housing starts are
much lower than anticipated and numbers are expected to continue
to fall for another two years, severely undermining the government's
housing targets.
— Despite the government's efforts,
liquidity is still expected to be a problem for sometime, which
will, in turn effect the pace of recovery for the house building
market.
— Falling house prices and unemployment
are also impacting on the housing market.
— Fewer new build private houses result
in fewer social houses being built due to Section 106 agreements.
— Manufacturing capacity in some of
the key sectors relevant to house building is being reduced and
could be lost for ever.
— Government's target of three million
new homes by 2020 now seems unrealistic.
— A clear definition of what the government
means by zero carbon is urgently needed.
— However the construction products
industry is already manufacturing a wide range of products that
help deliver more energy efficient homes.
— Credit crunch will hinder the zero
carbon homes target as research and development budgets will be
squeezed.
PRIVATE HOUSING
1. The government's targets for private
housebuilding were set in a totally different economic environment
and the measures the government has taken over the last 12 months
have been more directed to minimising the impact of the credit
crunch on the private housebuilding industry rather than aiming
to meet any pre-determined long term target. Given the speed and
severity of the downturn this objective seems inevitable and appropriate.
2. The key issue that had to be addressed
is restoring liquidity to the capital markets, and the government
has taken a positive lead in this. The scale of the problem appears
to be such that this will not be resolved quickly and therefore
a more cautious lending regime seems likely to be in place for
some time. This will inevitably impact on the availability of
funding and the pace at which the housebuilding industry can recover.
3. Other factors have also now come into
play, in particular increasing unemployment and falling house
prices. Against this background it is hard to see how the steps
the government has taken to try to revive the market in the short
term through various shared ownership schemes and the temporary
raising of the level of the stamp duty threshold will make any
significant difference to the level of new housebuilding.
4. Against this background, the Association's
latest forecasts for the construction industry for the period
2009-12 which were published at the beginning of October, point
to a further fall in private housing starts in Great Britain from
the 110,400 we estimate there will be in 2008 to 95,000 in 2009,
the lowest figure since 1954. In 2007 the figure was 181,400.
We are forecasting the start of the recovery in 2010 and the figure
is expected to rise to 132,000 by 2012, but still 27% below the
level in 2007.
SOCIAL HOUSING
5. The impact of the reduction in private
housing has also been felt in the social housing sector because
of the dependency on Section 106 agreements to deliver this form
of housing. As a result the number of social housing starts in
2008—estimated to be just over 24,000—is well below
what might be expected in order to meet the government's target
of 45,000 social housing starts by the end of the current Comprehensive
Spending Review period in March 2011.
6. In September the government announced
a £400 million boost in spending power for social housing
providers to deliver 5,500 more social houses over the next 18
months by bringing funding forward, but this will not increase
the overall level of social housing starts over the whole period.
Without a dramatic recovery in the private housebuilding industry
(which we are not expecting in the short term) we cannot see how
the figure of 45,000 will be reached by 2011, and the Association
is forecasting just over 34,000 social housing starts in that
calendar year.
7. Over the period to 2011 the amount of
additional social housing available will increased as a result
of the government making available £200m for the purchase
of unsold private houses for use in the social sector. To date
some 2000 have been acquired in this way with the prospect of
some additional purchases in the future. Unless the funds are
available significantly, and there is no sign that this will be
the case, this will go only a very small way towards bridging
the gap between the forecast levels of new build and target for
2011 and the intention that the social sector should provide 50,000
new homes annually thereafter.
MEETING THE
GOVERNMENT'S
OVERALL HOUSING
TARGETS
8. The government's overall target to build
240,000 homes a year in England by 2016 was always going to be
challenging, requiring a higher level of private housing starts
than had ever been achieved other than in two years during the
1960s. Given the exceptionally low base that the industry will
experience both this year and next we cannot see how the resources
will become available in such a short period of time to reach
that target.
9. Housebuilders have had to shed large
numbers of skilled craftsmen that it will not be easy to bring
back into the industry, and in the manufacturing sector capacity
is being taken out in key sectors like bricks and blocks. Some
factories are being mothballed but it will still take at least
six months to re-commission these once the companies are confident
that there is a sustained recovery in demand. Many other factories
are, however, being permanently closed and will never be re-opened.
As a result there is concern about the capacity in some product
areas to meet levels of demand if the recovery is too rapid.
10. Looking further ahead, the government
has a longer term target of three million new homes by 2020. The
short fall in supply in these early years is raising the requirements
in the later years of this period to even more unrealistic levels
and without some dramatic turnaround in the industry's fortunes
and the ability of the planning system to provide sufficient land
with planning permission—something that it has failed to
do in the past—this longer term target also now seems unrealistic.
11. From the product manufacturers and suppliers
point of view these long term considerations are very important.
Investment decisions about bringing on new capacity have to be
taken well in advance of the need and the return on that investment
is spread over a number of years. Most of the major UK product
manufacturers and suppliers are now owned by overseas companies
and decisions about investment in the UK are in competition with
potential for investment in other countries.
12. This Association has welcomed the government's
decision to set long term output targets in a number of key areas
such as housing and school building. Such targets have, however,
to be credible and reviewed if the circumstances change. Our concern
is that if government maintains its commitment to targets that
are no longer credible if will lose the confidence of the companies
to invest in the UK, and future targets will not be taken seriously.
ZERO CARBON
HOMES
13. The other major government target is
that all new homes should be built to a zero carbon standard by
2016. This is a target that no other country in the world has
achieved or, to the best of our knowledge, has even aspired to.
As an aspiration, however, it is something that the Association
has supported and worked closely with government and our industry
to see how it can be achieved in a cost effective way. What is
absolutely critical, however, is to have a clear definition of
exactly what is meant by zero carbon, and it is disappointing
that the government will not be issuing a consultation on this
until later this year, nearly two years after the setting of the
target.
14. A key element for the manufacturers
and suppliers is to know whether "zero carbon" applies
to individual units, or whether having achieved the maximum energy
efficiency from the built fabric of the property, a range of means
(for example exclusively onsite generation through to offsite
generation with a private wire or via the National Grid) can be
developed to ensure that the residual amount of energy that is
required is zero carbon. The details in these decisions will be
crucial in determining where the focus of product innovation should
be directed for energy generation.
15. Despite the absence of a clear definition,
progress has already been made in trying to meet this target.
The construction products industry has made a considerable amount
of investment in research and development to show what can be
achieved and how this might be done in a cost effective way whilst
still providing people with homes they can afford and want to
live in. For example, a number of prototype low carbon and zero
carbon homes have been built at the BRE Innovation Park at Watford,
whilst much has been done to improve the performance of energy
and heat generation through the development of micro CHP technology
and various forms of renewables.
16. The credit crunch has certainly not
helped what was already an extremely challenging ambition. The
uncertainty surrounding the 240,000 target inevitably extends
to whether government will still require these homes to be zero
carbon, whatever the definition. The sharp fall in property prices
means that any additional costs associated with creating a zero
carbon home will constitute a higher proportion of the selling
price of the house. At the same time, the dramatic downturn in
the market and the profitability of both housebuilders and manufacturers
inevitably puts a squeeze on budgets for the research and development
of the products and solutions needed to meet this requirement.
It also makes it more difficult to fund the building of prototypes
in order to help us better understand the performance of low and
zero carbon homes.
CONCLUSION
17. No-one could have anticipated the speed,
severity, and widespread impact of the credit crunch and the consequences
for housebuilding in this country. It is still too soon to be
sure that the situation has stabilised or to understand the full
impact of these unprecedented events. Once we feel more confident
to do this, it is important that government re-assesses the targets
it has set in consultation with the industry so that we are confident
that the targets we are aiming for, whilst challenging, are realistic
and will encourage manufacturers and suppliers to make the investment
in innovative and new products and solutions, as well as the necessary
capacity to ensure the volumes of all the construction products
that are needed are available.
October 2008
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