Insights

Why isn’t housebuilding better?

  • Written By: Dermot Mahony
  • Published: Fri, 25 Sep 2020 10:30 GMT

Following our recent think tank ‘The changing role of strategic land’ in association with Property Week, in which we explored the role of strategic land in the wider development industry, it is clear that housebuilding may need to change in the post-Covid environment. In particular, the role of the physical environment in our wellbeing and mental health has become far clearer. This should be reflected in the priorities of housebuilders from here on.

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Last month, the Housing Secretary called for reform to the ‘overly bureaucratic’ planning process, claiming it was time to re-think the system “from first principles”. Certainly, even before the crisis, housebuilding needed an overhaul and that has become even more important in the context of the coronavirus pandemic. As it stands, it isn’t working in two fundamental ways: it isn’t building enough homes and those homes aren’t as good as they should be.

There remains a severe housing crisis. The National Housing Federation estimates that an estimated 8.4 million people in England are currently living in an unaffordable, insecure or unsuitable home.1 Affordability is at an all-time low. The Resolution Foundation says that the average first-time buyer family, saving 5% of their income, would need 21 years to save for a deposit today, compared to just four years in the early 1990s.2

Housebuilders are both part of the problem and the solution. As it stands, the current rules are working well for housebuilders. They are, by and large, extremely profitable with the two largest firms earning net margins of over 20%. This is among the highest of any industry outside of the technology sector. To put this in context, these margins are higher than Apple, which is making luxury goods rather than affordable homes.

At a time when they are not building enough houses, they have vast landbanks. They know exactly how much a house will cost to build and whether it is worth their while to build it. Many homes are built with function rather than form in mind. In the more extreme cases, scant attention is paid to ‘liveability’ - windows, interior design, gardens and the like.

Perhaps more importantly, there is no incentive for housebuilders to add further infrastructure – for example, a GP surgery, community centre or shops, perhaps even a communal play area or meeting space. Instead, the system simply encourages them to build as many houses as planning will allow. This has consequences: most notably, putting considerable strain on existing infrastructure. It also means these housing developments will tend to be built on land on the edge of a town, a long walk from amenities. It creates soulless estates, where people can live, but little else.

Why is this happening?

In many cases, it is a failure of the planning system, which is not sufficiently joined up. Things can be better in larger metropolitan areas, where there may be a mayor in place who can see the whole picture. However, too often planning is siloed from other aspects of local council business and considered separately to issues such as schools or health.

Rectifying the current situation will be difficult but the impetus has to come from planners and policymakers. It can’t come from consumers – they buy where they need to buy at the price they’re offered. And it’s not going to come from investors – they’re unlikely to put pressure on management teams to improve their products, potentially at the expense of high margins.

To date, reforms have been piecemeal and have only sought to address the most egregious harms, such as the freehold/leasehold problems. In the wake of the COVID-19 outbreak, out-of-town property is likely to be in greater demand. This represents a real opportunity to create a new vision for suburbia. This should be mixed use developments - with shops, health facilities and communal meeting areas. This could create vibrant living spaces, which would support well-being. Housebuilders need to be incentivised to be more creative.

Trailblazers

There are those that have done a good job. While it has been much criticised by architects, Poundbury near Dorchester is a good example of this type of mixed-use development in action. It has become a thriving community. It was the brainchild of the Prince of Wales who is now planning a similar development in Nansledan in Cornwall.

Goldsmith Street in Norwich, which won the Stirling Architecture prize, showed how this could be done on a budget. It is a collection of almost 100 ultra-low-energy homes built by Norwich City Council. The back gardens share a secure alleyway for children to play together and there is a landscaped walkway for communal gatherings through the middle of the estate.

Overall, the system can do better. If the Housing Secretary is really undertaking a root-and-branch reform of the planning process, he should look at what would work to create vibrant space where people can not only live but also play. Only then will housebuilding really be doing its job.

Sources

1. https://www.bbc.co.uk/news/uk-49787913
2. https://www.resolutionfoundation.org/publications/housing-outlook-q3-2020/

DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.

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Dermot Mahony

Associate Director, Investment Management

Investment management - Private client
London

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