Meeting the UK's Housing Demand

During the summer the Built Environment Select Committee opened an inquiry to investigate the demand for new housing in the UK, and how barriers to meeting this demand can be overcome. The inquiry asked for evidence on the key factors shaping the type, tenure and quality of housing needed in the UK. CIOB responded to this call for evidence. In our response we point out that, given the right policy environment, the construction sector can meet the UK’s housing demand; however, several barriers need to be overcome to facilitate this. Our response, which you can read here, contains all the barriers we have identified. However, for the purpose of this blog we focus on six core issues.

Cyclicality

Cyclicality is the root cause of many of the issues facing the construction sector: productivity; the shrinking pool of labour and the ability to attract new talent; job stability; and working conditions all suffer as a direct result of the construction sector’s perpetual boom-bust cycle. Cyclicality also prevents the sector from maintaining housing output during an economic downturn, and its ability to respond quickly to meet demand during an upturn.

Our submission recommends that the Government address this cyclicality by providing a clear, long-term pipeline of publicly led housing projects. As part of its housing policy, the Government should assemble and publish a stand-alone pipeline of projects in the local authority building and housing sector.

Skills

Improving the quality of, and access to, education and training is crucial to ensuring a pipeline of qualified, professional workers who will build the housing needed to meet national demand. However, the poor image of construction has continued to have a detrimental impact on businesses’ ability to recruit and retain people with the right skills. This, in turn, effects the sector’s ability to meet the national target of 300,000 homes annually alluded to in the Inquiry.

To ensure that there is consistent recruitment into the construction industry actions must be taken to provide education and training opportunities for young people. The industry has introduced several initiatives to engage and inspire young people to enter a career within construction. In our response we outline several such initiatives - including CIOB’s own Craft Your Future – that, with the appropriate coverage, can be effective mechanisms to attract new talent into the sector.

Market Diversification

Our response is clear that a range of types and tenures, rather than just sheer quantity, of housing will be required to meet the UK’s diverse housing demand. In recent years the oligopolistic features of the housing market have led to the large scale production of homogenous housing types that do not satisfy the varieties of national housing demand. Volume housebuilders have come to dominate output as SMEs have struggled to recover from the financial crisis, and the state has largely withdrawn from housebuilding.

Data from the Federation of Master Builders indicates that SMEs built 40% of new homes in 1980s, 23% in 2008, but now build only 12%. In our response we argue that if we are to diversify the types and tenures of housing available, we need to diversify the market. This means supporting SME housebuilders to re-enter the market, specifically by providing easier access to finance. This could be available for the purposes of both site acquisition and working capital.

Productivity and Innovation

Perpetual volatility in demand for construction has led firms, particularly SMEs, to curb capital investment; spending on research and development (R&D) brings high fixed costs that are difficult to cut in an economic downturn. This leads to a sluggish response to housebuilding when demand picks up in a growing economy. Creating an Innovation Fund to channel low cost, long-term loans to SMEs for investment in formal R&D would address this, and lead to sector wide improvements in productivity, thereby facilitating a more responsive sector.

Climate adaptation

The construction industry is ideally placed to help to kick start the economy following the Covid-19 pandemic. Upgrading the energy efficiency of existing homes through repair, maintenance and improvement (RMI) work is an example of a socially valuable project that will support the economy, while providing an unprecedented opportunity to address the health and wellbeing of residents and make progress on the decarbonisation of existing homes as a key strategy to meet our net zero obligations.

We recommend the Government implements a long-term national retrofit strategy, such as that proposed by the Construction Leadership Council here.

Quality

Quality, or rather the failure of quality, is, along with supply and affordability, one of the most important issue facing the housebuilding industry. Quality is a multi-faceted issue, and, in our response, we point out a range of areas that require policy intervention if we are to meet the UKs housing demand with high quality supply. As per our previous evidence for the Housing, Communities and Local Government Committee inquiry into Permitted Development Rights (PDRs), we argue that the flexibility of use PDRs bring will only benefit residents where PDRs are subject to checks for markers of quality such as EPC ratings, building aspect, building safety measures including Gateway One checks, and access to amenity space.

Our response also urges the Government to fully utilise the establishment of the New Homes Ombudsman (NHO) to lead a cultural shift towards higher quality housing output in the construction sector. Giving the sector time to prepare for the NHO will allow the office to have the positive impact on quality we believe it can.

Our response is also clear on the negative impact that the dysfunctional land market is having on quality in housebuilding. The high cost of land is leading developers to devote a disproportionate amount of finance to the initial site purchase. This leaves less funding available for design and build quality later in the process, which results in poor quality housing. Addressing the negative impact of hope value on the land market will arrest this negative feedback loop. We would point to Ireland’s recently published land value sharing model as an exemplar.

Successive Governments have tried and failed to address the UK’s chronic inability to meet housing demand. We are encouraged by this Inquiry’s broad scope, and its not attempting to simplify what is a complex issue. We stand ready to work with the Committee on rolling out some of the policies we have proposed in our response.

Our full response to the Committee can be found here.