The government is determined to ensure its promises to increase housing supply are carried out; not only as a way to promote economic growth, but also to meet the needs of the next generation by giving more first-time buyers the chance to get a foot on the housing ladder. It has set itself the target to increase the annual supply of new homes by 50,000 to reach 200,000 per year over the next decade in hope that this will meet the demands. Two drivers for the government are density – more homes on less land; and recycling – increasing the proportion of new homes built on brownfield land.
However, while the government has set down ambitious targets, it needs to ensure its house is in order to enable delivery from the housebuilding industry. It needs to tackle the planning approvals process and current ‘not in my back yard’ (NIMBY) influence in local policy decisions; and it also needs to ensure new legislation, such as the Planning Gain Supplement (PGS), does not dry-up the flow of opportunities, particularly on brownfield sites where it wants to boost housing development.
Flexibility and effectiveness
It is significant that the smaller independent housebuilder, rather than the large national operator, can be most effective operating on brownfield sites. They have the flexibility to be more responsive to the local market opportunity and take on board the unique site characteristics that a brownfield scheme will offer. They are proving to be most adept at supporting the government’s efforts to protect the countryside, as evidenced by looking at the profile of our portfolio.
We are providing development funding to over 130 schemes across England, Scotland and Wales, accounting for over 2,500 homes. All the developers are independent, medium to small-sized operators. An analysis of our portfolio by brownfield/greenfield split, reveals over 83 per cent of the schemes are brownfield sites and only 17 per cent greenfield. This far exceeds both the government’s Planning Policy Guidance Note Three (PPG3) that dictates by 2008, 60 per cent of new homes should be built on brownfield sites; and the Department for Communities and Local Government (DCLG) (formerly the Office of the Deputy Prime Minister (ODPM)) figure that the current industry average is 72 per cent across the whole country.
As the government is driving for greater density, we can again look to see how this is impacting on our portfolio profile. An analysis of the type of schemes in our portfolio reveals that of the total 2,500 units it is currently funding across the UK, 61 per cent are apartments and 13 per cent are detached houses. A year ago in January 2005, 54 per cent were apartments and 22 per cent detached houses.
TSUB Key forces
This noticeable increase in proportion of apartments being built compared with detached houses reflects two key forces at work. Firstly, the marketplace is changing. Apartments at accessible prices have an appeal to first-time buyers who want to get a foot on the housing ladder. Also, with the increase in people choosing to live alone, be they singletons, divorcees or retirees downsizing, quality apartment-style living has become an increasingly popular option.
However, the second force at work is the effect of government policy. As the government is demanding greater density, the trend is towards building apartments at the expense of the detached house. The mantra of ‘more homes on less land’ is most achievable through apartments and least achievable through detached houses.
The concern is that where the drive to density is not market led, but policy driven, it can lead to an oversupply of apartment accommodation in certain markets to the detriment of more traditional housing. For example, certain cities in the South have seen an oversupply of apartments particularly in the mid to upper price range. We are watchful of ensuring our investments in apartment schemes are in locations where there is supply and demand imbalance driven by volume and/or price.
Challenges
Sharp-eyed observers will have noticed the big names in housebuilding in the UK are collectively losing market share. Figures from the National House Building Council (NHBC) show the top 25 housebuilders’ share of the market in 2003 was close to 60 per cent; last year it had dropped to 53 per cent and there are signs to suggest this trend will continue. Small and regional housbuilders are filling the void. However, one of the factors that can be a challenge for the independent housebuilder is the availability of equity. It may be a lack of funding or just a desire to retain the equity available for more effective uses. The fact is that housebuilding ties up significant capital for a substantial period – even more so on complex apartment schemes. This is where specialist funding companies can really support the housebuilder providing them with up to 100 per cent funding on a project by project basis. With development funding secured, opportunities that might otherwise have had to be passed over can become a reality.
As the country wants more homes, the smaller, independent housebuilder has a critical role to play in ensuring the demands are met; and we have a role to play in supporting them
