New private housing delivery set to stall

• Total delivery on new homes will drop by 35% in 2020
• This will means private housing delivery across the UK will be lower than in the years following the global financial crisis
• In London, we expect 8,000 fewer homes will be built compared to the five year average

The government-imposed lockdown has been extended, taking us to 7th May, at least. Official guidance advises that construction sites can stay open, as long as social distancing protocols are adhered to.

Many, but not all, housebuilders opted to shutter sites through the lockdown to protect workers, and as a result of supply-chain difficulties, and our analysis of pipeline data suggests that (as of 17th April) work had been suspended on residential schemes capable of delivering nearly 250,000 new homes across the UK.

Gradually, we are now starting to see firms setting out their strategies for a phased return to site construction and operating, albeit with strict social distancing protocols. In most cases this will mean a managed slow and steady return to activity. What’s clear, however, is that this will not simply be a case of flicking a switch back on. Inevitably the building hiatus and subsequent phased return to work will have a sizable impact on private housing delivery in 2020 and beyond.

Indeed, even under the assumption that the majority of housebuilders recommence construction in early to mid-May, getting back up to speed will take time. There are a myriad of issues related to the supply chain, for example, with question marks over the availability of building materials, as well as delivery, distribution and labour.

More intangibly, consumer sentiment will also impact recovery, and the fact remains that housebuilders will only build what they can sell. In the short-term, this will mean giving priority to restarting and completing sites where there are existing customer orders. Though it is encouraging to note that both Persimmon and Taylor Wimpey reported stronger than expected reservation rates for new homes in spite of the lockdown.

Taking this into account, alongside our own conversations with some of the major housebuilders in recent weeks, our expectation is that private housing delivery across the UK in 2020 will be around 35% less than what it would otherwise have been.

To this end, if we take the Office for Budget Responsibility's (OBR) forecast that 160,901 private housing completions would have taken place this year, that would mean housing delivery would stand at around 104,500 in 2020, a drop of 56,000 new homes.

It is worth noting that the OBR numbers, which are based on new build statistics from MHCLG, tend to undercount housebuilding.

Commenting on the figures, Justin Gaze, Head of Residential Development Land at Knight Frank, said: “Faced with supply chain challenges and a national material shortage, developers are under increasing pressure to adhere to tight distancing controls and an ever dwindling availability of skilled workers. This has cast a dark cloud over the capacity for housebuilders to deliver at scale and speed. 

“Now is the time for the government to intervene and support the private sector in getting building again. There needs to be a pragmatic approach. Extending Help to Buy and relaxing planning regulations to give developers greater flexibility on Section 106 and Community Infrastructure Levy (CIL) payments would be greatly welcomed. Introducing a Stamp Duty holiday and streamlining the conveyancing process would also be a major stimulus. These measures would no doubt act as a real driver for the wider UK economy; helping to create jobs, new housing and ultimately receipts for the treasury via increased liquidation in the market.”  

In London, if we assume housing delivery in 2020 would have been in line with the five year average of 22,162 private housing completions, according to Molior (which includes sites of 20 units and above), this would result in 14,405 homes being built this year, a reduction of nearly 8,000 and the lowest number since 2014. Whilst housebuilding by private developers makes up just one portion of overall housing delivery, the drop will prove a significant setback to the Mayor of London’s yearly target to deliver 55,000 new homes.

Indeed, these figures refer solely to private housebuilding and therefore do not take into account activity from housing associations, or local authorities. It will also not include other additions to net housing supply such as conversions.

As we have noted previously, government support could be key to a faster recovery period once the lockdown has passed.

An extension of time to implement existing and pending planning permissions, given current barriers to developers starting on sites, would be a start, and one that has the backing of the HBF, the trade body for the home building industry. There is also a precedent with the government having granted similar temporary powers between 2009 and 2012 following the financial crisis.

Greater flexibility should also be encouraged with regards to the payment of planning obligations, such as section 106 and Community Infrastructure Levy (CIL) payments. Such outlays are generally paid up-front and a move to allow practical staggering or staged payments would be welcome. Local authorities are now exploring just this issue, with recommendations to delay CIL payments to support developers during the pandemic.  

Of course, the key question which will determine the impact is 'how long'. If Covid-19 disruption is short-lived that could mean the UK can get back on track relatively quickly. However, the longer the disruption the greater the pressure on the market and longer the recovery.