An Ill Wind?


Blog author: Richard Saxon CBE, JCT Chairman

Britain has a massive, long-term housing problem, with market-driven supply not nearly equalling demand and major skill shortages preventing any increase in that supply in the short term. The country also has a set of policies in place which hamper alternatives from making a contribution by seeing home-ownership as the people’s ideal. It may be the aspiration of the majority but it’s an impracticable one: home ownership rates are falling.

But now we have another national crisis to worry about: Brexit. Whatever the rights and wrongs of the policy and how it came to be, the result is a period of uncertainty for investors and consumers. Could it be that this crisis helps with the other one? The Chinese characters for ‘crisis’ are two: ‘danger’ and ‘opportunity’. Brexit may well deflate demand for housing for sale, along with demand for commercial space. The uncertainty could last for over two years as we negotiate our new trade relationships with the EU and with other countries. During that time there will be a need to stimulate the economy to avoid recession. Public investment, at very low interest rates, is back on the agenda. The government is already signalling that there will be a priority on investment in infrastructure and that the target of a million new homes by 2020 will be maintained or even increased. So could the end of austerity policies allow us to tackle the housing crisis? The Autumn Statement should reveal all.

It’s possible that the Brexit-induced deflation of demand could free some of the trade skill capacity to move from commercial building to housing. But it’s going to be necessary to alter policies that see the only good way to house people as home ownership. Housing costs and incomes are now so far apart that the majority of future households have no prospect of ownership. Incomes have fallen whilst house prices have risen. Student loan repayments crush the ability of many young families to find a deposit or service a mortgage before they are 40. Demand for housing to buy is thus going to falter even with ‘Help to Buy’ and ‘Starter Homes’. As housebuilders build at the rate that they can sell, slowing down is inevitable. It is significant that housebuilders prefer traditional construction to modern methods as it allows the rate of building to be varied up and down easily.

Rental housing, on the other hand, is capable of being built quickly and in quantity as tenants have no need to borrow. Buildings are usually filled rapidly. The new concept of institutionally-funded build-to-rent is offering high quality homes on longer term leases. The reason it has yet to become a mainstream supply is because of the priority on home ownership. Development for sale produces faster and larger returns on capital and can therefore pay more for sites than build-to-rent. Build-to-rent aims rather to produce long-term income streams to fund pensions. Any deflation of demand for build-to-sell can thus open up sites for rental housing, leading to faster supply.

One further reason for hope is that rental housing can be built in the teeth of skill shortages. By not being tied to traditional construction, rental development can exploit offsite construction methods. These use factory-based people and often machine-led manufacture. The factories offer indoor work in safety and with social hours compared to building sites, attracting a diverse labour force without trade skills. Modern methods of construction involve capital investment in factories plus a constant flow of orders to service the investment. This flow has proved difficult to achieve in recent, sale-led markets. It could do better when competition from sales weakens.

Factory based construction is better quality than site-based home building. The recent All-Party Parliamentary Group report on housing quality(1) is scathing on the effects of weak quality control and poor terms of contract for buyers. The current weaknesses are partly the result of skill shortages and partly come from the unequal power balance between buyers and sellers in a grossly undersupplied market. Renters are protected by the building owner’s power to achieve quality of construction and finish.

We are not just talking about private build-to-rent as the source of rental supply. Local authorities and housing associations need to be re-energised to build, not punished with right-to-buy policies and forced-down rents. Borrowing should be part of the counter-recessionary investment plan, with public land made available for affordable development, not sold for highest achievable price. The fear of monolithic public housing estates reappearing has to be countered by mixing tenure. Partnerships between institutional rental developers, housing associations and public authorities, building to sell and to let at market rates and subsidised, can create ‘tenure-blind’ communities, as has become normal in New York City.

Finally, a sector almost absent from the UK needs to be encouraged: self-build. People modify their houses all the time but whereas on the continent and in the USA building your own home is common, here it is rare. Planners just don’t allow for it. Small builders and manufacturers of kit houses are excluded from the new-build market by this blind spot. So capacity could be released by creating parcels for self-build in the town extensions being planned. The essential regeneration and densification of our interwar eight-to-the-acre suburbs is also a major opportunity for self-build, as demonstrated by the recent report Supurbia(2). Individual houses can be redeveloped into small blocks of flats; pairs of semis go further; back-land plots can be opened up.

So it’s an ill wind that blows nobody any good. Brexit might just help us tackle the housing crisis and establish more balanced policies. We await the Autumn Statement to see.

(1.) ‘More homes, fewer complaints’: All Party Parliamentary Group for Excellence in the Built Environment. July 2016.
(2.) Supurbia: a study of urban densification in outer London. HTA. February 2014.


Note: Blog posts are the views of the author(s) and do not necessarily represent the views of JCT.