Capacity in the homebuilding industry Contents

Conclusions and recommendations

The structure of the homebuilding industry

1.The high volume homebuilders dominate the market and are therefore able to shape how it operates. Having purchased land at a given price and devised a scheme that will allow them to recoup their investment and deliver a profit, they will not risk over-saturating a local market to the extent that house prices will fall and their profits decrease. This is rational commercial behaviour and a sound business model. But it is not one that is in the country’s best interests. (Paragraph 7)

2.We do not believe that developers intentionally inflate prices—but they reduce risk by building to demand at current prices, and there is insufficient incentive for them to build any quicker, and considerable incentives for them to ensure that local prices do not fall. We encourage the Government to consider how it can influence the financial model of the sector and encourage developers to take a longer-term perspective and a greater stake in civic homebuilding. We recommend to our successors that they revisit the land market, how land prices can determine development outcomes and the feasibility of increased public intervention in the land market so as to be able to prioritise long-term community benefits over short-term commercial profits in a future inquiry. (Paragraph 12)

3.Working with developers and local authorities, the Government must ensure that the data collected by local authorities on the development pipeline are more thorough and reliable. It must be clear at a local level how many planning permissions have been granted, at what stage those permissions are, who owns the land, when the permissions will be built out and what the reasons for any delay are. We would expect this to be done by autumn 2017. (Paragraph 17)

4.We do not want measures intended to increase housing completions to act as a disincentive for developers to consider proposing a development. But local authorities should be encouraged to require a schedule of build-out rates prior to granting planning permission. This, coupled with increased transparency on developer behaviour and performance and a greater use of compulsory purchase powers, would in our view be likely to increase build out rates. (Paragraph 21)

5.The country’s homebuilding market is dominated by the volume builders, whose output is determined by their assessment of risk and uncertainty. If the country is to boost the supply of new homes, then greater market diversification and counter-cyclical building will be necessary, as well as measures to reduce risk to developers. (Paragraph 25)

6.We appreciate the reasons why local authorities often prioritise allocating larger sites for development over multiple smaller sites. However this has made accessing land more difficult for small and medium sized builders, and we urge local authorities to make more suitable land available to them. (Paragraph 35)

7.The Government should consider helping smaller building companies to access credit at more favourable rates. (Paragraph 39)

8.We welcome the introduction of the Home Building Fund, especially its efforts to increase access to finance for small and medium sized builders. We recommend that our successors revisit the implementation and effectiveness of the Fund within the next two years to assess its success, and consider the German model of support for SMEs. The Government should publish a strategy within the next year outlining the practical steps to be taken to encourage commercial lenders to lend on more appropriate terms to home builders. The Government should look closely at the lessons that can be learned from the German model of support for SME companies, which offers support and certainty for the sector as a whole rather than to individual companies. (Paragraph 44)

9.It is essential that Accelerated Construction does not become another stalled initiative like the direct commissioning pilots which have little to show a year on from the substantial initial financial commitment. The Accelerated Construction programme should be closely monitored by our successors, so as to make it possible to assess its effectiveness at bringing forward more surplus public land for development, diversifying the market through partnership arrangements with small and medium sized builders and supporting offsite manufacturing. Accelerated Construction provides a welcome opportunity for public funds to be used to reduce the risk of development through a more proactive role for the HCA. The HCA should provide regular written updates to the Committee with progress reports against key milestones. (Paragraph 48)

10.We recognise that some local authorities may be wary of increasing borrowing in a time of austerity, but in light of the severity of the housing crisis recommend that all HRA borrowing caps should be raised and in some cases removed, where housing affordability is at its worst. (Paragraph 55)

11.We welcome all efforts by councils to be innovative and explore alternative delivery models such as joint ventures and arms-length local authority trading companies. However we are concerned that with so many different approaches across the country, there is a risk that best practice is not shared and that resources could be used inefficiently. There is also a risk that the large number of local authority housing companies could struggle to access the skills and expertise needed to deliver at scale. The Government should review the capacity and skills of local authority housing companies to assess whether they are able to access the quality of expertise needed and to identify and share examples of best practice in order to improve performance and the delivery of new homes. (Paragraph 58)

12.We welcome the Minister’s recognition of the need for certainty over social rent levels, and call on the Government to provide this as a matter of urgency to ensure that housing associations are able to maximise their delivery of new housing. At the very latest, certainty over social rents should be provided by the Autumn Statement. (Paragraph 64)

13.Housing associations have charitable purposes, and they (and Government) must remain mindful of this. Government policies on the reduction of social rents have affected the sector’s financial modelling, with many increasingly subsidising services by building more homes for sale, or merging to achieve financial efficiencies. We are not opposed to this in principle, as long as housing associations continue to deliver on their fundamental social purpose (Paragraph 65)

14.We welcome the Government’s recognition that focussing on a single tenure will not address the country’s housing needs. The Build to Rent Fund has proven to be successful in helping to deliver greater tenure diversity and we urge the Government to ensure that the consolidated Home Building Fund does not overlook the rented sector. We recommend that in a year’s time our successors seek reassurance from the Government that the consolidated fund is providing effective support to Build to Rent products. (Paragraph 72)

Planning reform

15.The Government is currently consulting on a standardised approach for assessing housing requirements, but use of the new standardised methodology will be an expectation rather than a requirement. The Government should ensure that there are sufficient incentives for local planning authorities to use the standardised methodology for assessing housing need, and Planning Inspectors should take use of the methodology into account when considering local plans. (Paragraph 75)

16.The Government is currently consulting on the proposed changes to the NPPF and we look forward to further information on how it proposes to ensure that smaller sites in a local plan are used by small and medium sized builders. The Government must set out the requirements on local authorities to ensure that larger sites are sub-divided. (Paragraph 77)

17.Increasing the number of small sites will help to challenge the dominance of larger developers and support small and medium sized builders. However they must not come at the expense of developer contributions that provide necessary community infrastructure. This issue must be addressed in the Government’s response to the Community Infrastructure Levy Review. (Paragraph 79)

18.We welcome the measures in the White Paper to make it clearer for all parties how the five year land supply should be calculated, and the opportunity for local authorities to have their housing land supply set and agreed on an annual basis, and fixed for a one year period to minimise disputes. (Paragraph 80)

19.We agree with the Minister that the country is facing a housing crisis and recognise the need to increase the number of homes available. However we remain concerned by the lack of control that planning authorities will have over homes created using permitted development rights. (Paragraph 85)

20.We call on the Government to ensure that in its response to the Community Infrastructure Levy Review, it considers the appropriateness of homes built using permitted development rights not contributing to local services, infrastructure or affordable housing. (Paragraph 86)

21.It is extremely regrettable that the Government’s response to the Community Infrastructure Levy Review was not published alongside the White Paper and will not be available until the autumn. (Paragraph 90)

22.We therefore reiterate the findings of our predecessor Committee and recommend that developer assumptions and assessments of viability must be shared with local authorities to ensure that the provision of infrastructure, affordable housing and build density is not compromised. (Paragraph 91)

23.The recognition by the sector of the changing skill requirements of local authority planning departments is welcome, but the delivery of affordable housing should not depend upon the negotiating skills of a particular local authority. We therefore urge the Government to explore the feasibility of a standardised methodology for assessing viability, much as it has proposed for agreeing Objectively Assessed Need. (Paragraph 93)

24.Councils should be required to demonstrate that the additional income from the increased fees has been used to accelerate housing and other developments, and to publish this information on their website to give developers assurance that the additional costs can be justified. The proposed second twenty per cent increase should incentivise all aspects of planning, not just the processing of applications. (Paragraph 97)

25.The role of planning is fundamental to the success of communities, and council leaders and chief executives must show leadership and support to recognise this and empower innovation by planners. Local authorities must show a commitment to the planning function and ensure there are incentives and support in place for employees that are seeking further training and formal planning qualifications, such as those facilitated by the RTPI. (Paragraph 101)

Land availability

26.We welcome the Government’s commitment to protecting the green belt, but are concerned that the proposals in the White Paper effectively weaken the protections in the NPPF, as the ‘exceptional circumstances’ could now include an authority not building enough homes. Any changes to a green belt designation should only be made as part of the wider local plan review process to ensure opportunities for community consultation. While we believe that removing land from the green belt should be a last resort, we reiterate our recommendation from our earlier report: the Government should publish guidance for local authorities, setting clear guidelines on when and how it may be appropriate for a local authority to review its green belt boundary in order to deliver new homes to meet local need. (Paragraph 105)

27.We welcome such measures and encourage local authorities to recognise both the social value that can be delivered by developments and that this can be more beneficial than maximising immediate financial returns. (Paragraph 108)

28.It is essential that the disposal of public land focusses on delivering land in areas where it is most needed, and that it does so without delay. We would welcome the HCA becoming more active in the acquisition of surplus land and, where appropriate, obtaining planning permission and directly commissioning development. We also support exploring whether incentives for Departments and public bodies (such as the opportunity to maintain a financial stake in the land) would help bring forward more public land. (Paragraph 110)

Innovation

29.We welcome the Government’s support of Modern Methods of Construction, but believe that it needs to take a more active role to improve the wider sustainability of the MMC supply chain and to encourage the market to grow. This could include the work of the HCA and its support of rental developments. (Paragraph 115)

30.We support the increased use of Modern Methods of Construction and note the understandable caution exercised by lenders. In order to address this, homes built using MMC should have a single, recognised quality assurance mark, sponsored by the Government, to give lenders, consumers and builders the confidence to use new methods. (Paragraph 119)

31.We welcome the recognition from the Government in the housing White Paper that accessing finance is a major obstacle to custom and self-building, and its commitment to continue working with lenders to address this. We ask that the Department provide the Committee with an update on this issue in twelve months’ time. (Paragraph 122)

32.We believe that the Government needs to review planning policy guidance to ensure that the measures promoting custom and self-build in the NPPF lead to greater opportunities for such development in local plans. In particular the fees charged by local authorities for the custom and self-build register should be reviewed to ensure they are not prohibitive. (Paragraph 125)

33.We are therefore disappointed at the lack of progress in the five years since the Committee’s report, and call for a more proactive role to support custom and self-build by Government and local authorities as investment by public bodies can encourage private investment. (Paragraph 126)

Skills

34.We believe that the review of the Construction Industry Training Board must produce concrete proposals for action, particularly on improving Further Education routes into the construction industry and the development of a clear cross-Departmental strategy. (Paragraph 131)

35.Addressing the skills shortage and the declining workforce is essential to ensure a continued and sustainable increase in the number of homes built. The Government’s review of the Construction Industry Training Board should be monitored, and we expect the Government to come forward with practical measures within a year to encourage new entrants into the industry and to retain those already working. (Paragraph 132)

36.While the level of EU-born workers will vary across the country, London undoubtedly faces the largest challenges both in terms of required development and the numbers of EU workers. We are therefore concerned that large numbers of an already stretched workforce face an uncertain future. The importance of EU labour to the construction industry should be taken into account by the Government in setting priorities for the Brexit negotiations. (Paragraph 134)





28 April 2017