2021 done and dusted - costs & delays
Shortages of materials and labour combined with planning delays have been the most common themes in the residential construction industry in 2021. According to a survey conducted by the industry body the Home Builders Federation, 78% of house-builders said the supply and cost of materials such as bricks, timber and cement, posed a huge problem, compared with just 20% this time in 2021. A Large proportion of businesses reported that in order to secure materials in short supply they had to be bought in bulk in advance, using cash that could have been used elsewhere in the business.
Delays in planning process disadvantage smaller firms in particular, mostly because SMEs do not have the financial ability to absorb the costs of prolonged and complex planning processes.
The UK construction industry has struggled with shortages of skilled workers for years as a result of ageing workforces, but the double shocks of Brexit and Covid have exacerbated these problems. Worker shortages and rising wages were noted by 59% of builders as a major issue, compared with 19% last year.
Winds of change - what is the industry preparing for?
- People need homes. But with pressure on natural resources and the uncertainty of climate change, it is important that homes are built in ways that provide benefits for both residents and the environment. Magical words – ‘sustainable‘ and ‘eco-friendly‘ spring to mind. Triple glazed windows, ground and wall efficiency, heat recovery systems, more PV panels on roofs and air/ground source heat pumps will have to make the house builders’ shopping list in the very near future. Some developers will look to create an extra 31% on its current efficiency by 2023, additional 71% by end of 2025 and no gas by 2025 – challenging and encouraging targets to have! With this in mind we will see supply chains stretched and new skills required.
- The country’s largest house builders could pay more than £200m a year into the government’s new cladding tax. It would levy a 4% tax on private developers’ profits of more than £25m to help pay for the cost of remediation work on developments across the country. The government has pledged to put £5bn towards cladding remediation, with the figure including the levy payments. The Housing, Communities and Local Government Select Committee has estimated that the total cost of remediating dangerous cladding could be at least £15bn.
- Biodiversity net gain is one of the flagship measures in the Environment Act, which completed its passage through Parliament in November 2021. It requires all developments to deliver a 10% increase in biodiversity. The provisions are due to come into force in late 2023. However, it seems evident that requirements to boost biodiversity in developments are becoming increasingly typical with the councils across the country already. Consultation on new regulations for BNG implementation began this week. For developers, this will affect the GDV and add extra costs, but should provide greener public spaces for homeowners, creating better street scenes and landscaping while it maintains diversity within the local fauna.
- Race for space – the global pandemic has forced the majority of us to re-evaluate our relationships with our homes, their purpose and our needs. It’s been reported that house-buyers are now more than ever valuing reasonable garden spaces, facilities for home working and surroundings amenities where they can work, live and play. It’s a trend that will be even more present in 2022. Keeping aspiration within the product and architecture, along with the space within the accommodation that has appeal and functionality will have to become an objective for developers.
Much of a muchness - land shortage & house price uncertainty continues
- Land land land – house price growth, a high number of home sales, increasing appetite for land from a range of players and an acute shortage of sites have driven upward pressure on land values across all regions, this has resulted in annual land value growth of approx 7% for greenfield and 5.5% for urban sites. Competition for premium development land has continued throughout 2021 and as a result, in many occasions, winning offers have exceeded anticipated price. More complex sites, however, have suffered from viability issues due to build, material and labour cost increases along with larger contingency budgets. Whilst supply and demand will maintain higher land values for the foreseeable future, additional expenses for sustainable future homes will have an effect on viability which in turn will have an affect on land values.
- Planning – nearly a third of local authorities in the South of England failed to identify sufficient land supply for new housing. 10% of authorities had a lack of land supply confirmed at appeal in the year to November 2021 with a further 23% publishing less than five years of land supply in their most recent statements. Another thorn in developers & planners’ side – phosphate and nitrate issue, which is becoming a growing problem with many sites still held up with no practical resolve. Difficult to remain positive whilst on a planning subject, what is clear though is that it’s an area requiring urgent resourcing and funding restructure to enable continued housing supply.
- House price uncertainty – although we do not have a crystal ball, one thing we do know – house prices very much depend on housing stock and choice, income growth, mortgage rates, house price to average earnings and UK economy stability. These things help create a stability and a house price ceiling within the market, creating a push and pull effect. We have good regulations in the financial sector to hopefully see a stable market over the coming months. We have seen mortgage approvals return to pre-pandemic levels, with the Bank of England’s base rate due to rise to 0.5% in the middle of the year. Whilst it’s difficult to guess how all these variables will effect the house prices immediately, it’s certain that in the short term – supply and demand will remain the key driver.
