House builders confident despite challenges ahead

One third of house builders see Brexit as a major challenge, new research has found, but despite market uncertainty increased growth and investment is forecast for the sector.

According to the second annual Lloyds Bank Commercial Banking report on the UK house building sector, confidence in UK house building is reflected by a 17% year-on-year increase in average five-year investment plans and the prediction that average five-year growth will rise by 28%, up from 25% last year.

Major challenges seen to be facing the sector, in addition to Brexit, include the rising cost of materials, the current planning system and industry skills shortages. However, despite these challenges house builders are forecasting increased growth and investment.

The report is the first in-depth study of the sector following the UK’s decision to leave the European Union in June 2016 and despite the concerns over Brexit, the report reveals that confidence in the future of the house building industry has edged up from 7.1 in 2015 to 7.2 this year, with 10 representing the highest level of expectation.

This outlook appears to have impacted on the industry’s confidence to invest, as average five-year investment plans rise by 17% year-on-year.

Furthermore, 42% of respondents say that their growth forecasts had improved since the EU vote compared with 27% who said they had declined, again supporting the argument that overall house builders are optimistic about the sector’s growth. They are now predicting an average growth of 28% over the next five years, up from 25% last year.

Pete Flockhart, Head of Housebuilders, Commercial Banking, Lloyds Bank, said:

“Given the challenges that housebuilders face, the sector is painting a relatively optimistic picture, with improved growth and investment forecasts compared with last year’s survey.

“The wider uncertainty, coupled with the rising cost of materials, presents some challenges but the industry is taking steps to tackle these issues head on, and still plans to grow.”

These latest figures were released as land broker Aston Mead published new research highlighting that joint venture partnerships between local authorities and developers could encourage the building of affordable homes.

By offering selected land to developers as part of joint venture partnerships, councils could support affordable housing developments, as house builders would no longer need to raise funding for both the purchase and build of properties, something which SME developers in particular find challenging.

Adam Hesse, land and planning director at Aston Mead said:

“The simple truth is that no developer is going to consider a site when as much as half of it has to be classed as affordable. Instead, we need a radical new approach to the problem, and as the largest landowners in the country I believe local authorities can provide the solution.”

Hesse believes that as councils already produce lists of the land which they own, the land could be offered through a partnership basis, on the understanding that at least 50% of it is for affordable homes. In order to ensure that the local authority is still getting the best price possible, the developers would then have the opportunity to bid for each site on a sealed tender basis.

“The developer gets almost immediate income back from having a readymade buyer who will take 50% of the housing off their hands, perhaps in staged payments, and the council gets its cut of the profits following the sale of the private section,”

said Hesse.

Stating that affordable housing is one of the key considerations in construction today, Hesse believes that this approach would result in more land being brought forward for development, with the much needed smaller sites in towns and villages seeing the greatest impact.

“This way developers get to crack on without long planning issues because the local authority will have been supporting them from the very start, and the council get the 50% target they are looking for or even higher if necessary. It might go on to prove that it’s possible to develop affordable housing next to private homes and make it work successfully and if so, it might encourage other schemes to follow suit.”

 

You may also like to read:

Implications of Brexit on buy to let mortgage rates
Jeni Browne
, head of residential and buy to let lending looks at how you can protect yourself in this period of economic uncertainty.

Why you should consider 5 year fixed rates
Gary McKenna
, consultant mortgage broker, highlights why it is now more important than ever to consider a five year fixed rate.

Four or more rental properties? How the changes to underwriting standards will affect you…
Gavin Elley, looks at why landlords with four or more rental properties are being singled out in the PRAs consultancy paper on buy to let underwriting standards and what this means for you.

How the new buy to let underwriting standards will affect lenders and borrowers 
Steve gives his views on what the implications of tougher interest cover ratios and increased background checks will mean for landlords and buy to let lenders.

 Newsletter sign up - News and blogs.jpg

Author