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Memorandum from 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
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 3 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 3 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
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
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
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 |