Our latest research indicates a short-term reduction in house prices of between 5% and 10%, and a significant fall in transaction volumes. However, based on Oxford Economics post-recession recovery forecasts, the impact could be shorter lived than the early 1990s recession and the global financial crisis of 2008. Yet, as new build residential construction comprehensively shuts down, it is obvious there will be a hiatus in new housing supply of all tenures. The duration of this remains the key question. UK PLC will need construction and housebuilding up and running as soon as possible – so what interventions might be needed to stimulate a swift return?
The vast majority of sites are now shut – right across the residential development sector. Volume house builders are open for sale via online viewings, but construction has halted and labour and supply chains are on pause. Build-to-rent schemes are on pause. According to the National Housing Federation, housing associations in England completed more than 40,000 new homes in the year to March 2019.
'While there will be some potential for bulk buys of unsold homes by housing associations or other investors, this is unlikely to be on the scale we saw in 2008'
Despite this, SME builders were hit very hard indeed – according to the Home Builders Federation, in the period 2007 to 2009 a third of SMEs stopped building homes. Unlike today, the remedy was purely financial – there was no public health challenge keeping workers away from sites. Fast forward to today and, although they have almost all downed tools, volume builders have low levels of debt and substantial cash reserves, so are better placed to ride out the downturn than in 2008.
'A large-scale, grant-backed ‘Get Britain Building’ style programme could enable housing associations and local authorities to buy standing and shovel-ready stock from SMEs, volume builders and landowners'
with the cross-subsidy model on ice, and mortgage lending and consumer confidence likely to be impacted for some time, the market for housing for sale of all tenures will remain subdued and affordable housing provider boards will be cautious about mixed-tenure development. At the same time, there is already huge pent-up demand for social and truly affordable housing for rent and this will increase. Providing top-up grant to convert homes planned for shared ownership to be built for rent – perhaps with a right to convert to shared ownership later – could help underpin board confidence to approve new schemes. A large-scale, grant-backed ‘Get Britain Building’ style programme could enable housing associations and local authorities to buy standing and shovel-ready stock from SMEs, volume builders and landowners to provide cash flow and guaranteed forward sales to get sites and the supply chain moving again, while the economy recovers.
SMEs would benefit from a recapitalisation debt fund combined with equity. Perhaps in the form of Homes England/Greater London Authority (GLA) buying live and pipeline sites direct – or by grant-funding housing associations and local authorities to do so.
Homes England and the GLA may need to step in to buy stalled sites, combining funding and resources to continue land, infrastructure works and planning to get sites moving again. If government agencies were to act as master developer, stalled sites could be used to support SME development.
local authority planners will need to be flexible on different types of affordable tenure, beyond prescriptive policies on social rent versus intermediate products. It would also be beneficial if a strong planning judgement was taken on affordable housing as a public benefit, against much-reduced Section 106 obligations, to improve viability.
in addition to bulk purchase deals with housing associations, local authorities and build-to-rent investors, volume builders may require further support to rapidly reopen sites post-coronavirus. This could include extending Help to Buy and underpinning mortgage availability – perhaps through a government-backed mortgage lender to get the market moving again quickly.
Helen Collins, Head of Department, Savills Affordable Housing Consultancy
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