Sir Bob Kerslake, chief executive of the HCA
The government has delivered vital funding to help maintain activity, but it’s now time for the construction industry to raise the stakes in delivering new homes.
Where are we now in housebuilding? In a considerably better place than we were a year ago. Large housebuilders have experienced better sales, faster uplift in prices and better positions on liquidity than was expected, although the situation is different for the medium-sized and smaller housebuilders.
On the other hand, we’ve seen a structural change in the mortgage market that I don’t think will change anytime soon. It will be a while before even a 10% deposit gets you a competitive rate, and 25% deposits will be an important constraint on the ability to move forward.
So the improvement remains fragile. While the commercial side is very flat, and with the continuing squeeze on public finances, there are likely to be challenging times ahead. The case for continuing public intervention in the sector will remain strong for many years.
At the Homes and Communities Agency we have seen our role as maintaining housebuilding capacity by swift and decisive interventions. We introduced flexibility around our affordable housing fund, to enable housing association schemes to keep moving. That helped us deliver last year and gave government the confidence to put new money in to our Kickstart programme.
Local authorities often have land and don’t want to sell it, so we decided to go with the grain by introducing the Local Authority New Build programme and the Public Land Initiative. Under the latter the government will remove the upfront costs and risks often involved in site purchase and preparation.
Under both these initiatives, public sector landowners can use the construction suppliers on our Delivery Partner Panel. We are very interested in seeing whether the contractors on the list can play a bigger role in directly developing sites on what I would call “blended margins” – pitched at a level between a contractor’s typical 6-7% margin and the 15-20% profit a developer would expect. Once we have the panel working, it could have wider applications – for instance, by setting up smaller, regional panels. We are keen to bring new players onto the affordable housing pitch.
We can also learn lessons from our European neighbours. The Netherlands leads the field in modern methods of construction, and it’s interesting to see how France has sustained high levels of housebuilding – its rate of building is probably twice that of the UK at present.
The industry may be uncomfortable with comparisons with the car industry. But that sector has been revolutionised in recent years in terms of ways of working and materials, and I think we need to see the same scale of innovation in housebuilding. The industry has built enough demonstration houses – it’s now time the lessons learned were taken up more widely. The forthcoming HCA requirement to deliver new housing to level 4 of the Code for Sustainable Homes will make new methods an imperative.
The government has ambitions for an 80% reduction in carbon emissions by 2050, but many industrial sectors won’t be able to deliver that. So housing has to go further and faster in cutting carbon emissions than other sectors, and its role in sustainability cannot be overstated.
While good buildings don’t deliver better education or better places, they’re a hugely important part, so construction has a key role to play in regeneration. The role of construction in offering apprenticeships and training to young people – a condition of HCA grant funding – should also send a powerful message to government that investment in construction brings important benefits.
In this downturn, the construction industry has shown itself to be capable, resilient and adaptable, working at very narrow margins to keep work moving. But once the market support mechanisms are reduced, it will need to sustain activity on its own. Whatever party is in power this summer, it will be looking at delivering more public housing for less money, which opens the door for those who can demonstrate value on all fronts.
Sir Bob Kerslake, chief executive of the HCA, was guest speaker at this year’s CIOB Guildhall dinner.
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