BBLB architects

Demand

In our experience underlying consumer demand for new housing remains. However, despite price falls, it is obvious that increasingly restrictive borrowing criteria continue to stifle first time buyer access to the housing ladder and first time buyers are crucial to opening up the market. The banks and mortgage lenders are impeded by the cost of their borrowing – borrowing at short term rates to lend long term – there is a £300m ‘hole’ which until recently the government was plugging with ‘quantative easing’. This has now ceased leaving lenders in a very difficult position.

Land

The expected ‘fire sale’ of cheap land resulting from the credit crunch as has occurred in previous recessions has not happened this time. Firstly, owner’s expectations of value have not moved to reflect current reality. The banks have been reluctant to crystallise their debt when their borrowers have gone into receivership/administration because of the impact on their balance sheet. Meanwhile the major house builders have painfully written down the value of their land banks and thus are not willing to pay pre crunch (high) land values. This however, brings us back full circle to land owners’ now inflated land value expectations.

Private Sector Housing

We are seeing the major players slowly returning, and the sector is starting to pick up. Understandably but perhaps somewhat disappointingly, their aspirations are a little timid and conservative, with very few 3 storey houses, or flats and nothing particularly contemporary, reverting back to traditional 2 storey design and 2/3 bed terrace or semi detached houses and 4/5 bed detached. In fairness this probably more closely reflects peoples (buyers) aspirations. However, it is unfortunate that the opportunity has not been taken to be more adventurous, after all the numerous television housing programmes have surely identified a strong demand for contemporary design.

Affordable Housing

Affordable (social) housing pre crash had largely ended up being delivered to R.S.L’s by private house builders as part of S106 agreements with levels of provision stipulated as part of the Planning Consent. Thus, many R.S.L’s had stopped, or severely reduced, their own building programmes. Following the credit crunch with the virtual cessation of private sector house building, it was inevitable that affordable housing would also diminish to a trickle.

This has prompted many R.S.L’s to resurrect their building programmes. Of course there is an inevitable time lag involved in getting back up to speed and this is reinforced by the comparative shortage of available land and the expectation of land values of land owners (see earlier). The whole process is further exacerbated by the reduction of grant levels to R.S.L’s by the HCA. This has prompted R.S.L’s to investigate alternative funding models to bring forward development, including building private market sector housing, to use the profits to part fund affordable provision. The question arises as to whether they have the expertise and mechanisms in place to compete with the major private sector house builders.

Housing Cost

The cost of housing is being inexorably driven up as a result of a number of factors. The continuing issue of contributions, currently in the form of S106 contributions, to be either replaced or supplemented by CIL’s. There is talk now of the imposition of minimum sizes for houses – no doubt a good thing but still with cost implications. And of course, we have the imposition by the previous Government of criteria to deliver zero carbon dwellings by 2016, together with the requirement by many Local Authorities for the provision of on site renewables (the ‘Merton’ rule). All of these carry cost penalties. The previous government’s own figures suggest an additional £25,000-£30,000 build cost to achieve Sustainable Homes Code 6 for a two bedroom house. Therefore, if the cost of building and enhancement of standards of houses is to increase and the desire to keep down the sales value of housing remains, the only element providing flexibility to achieve these aims is the cost of land. Is, then, the further reduction in land values at the necessary level of availability to meet demand realistic or achievable?

In summary: the flickering pulse of the recovering housing market needs every encouragement. Are we optimistic, in light of the issues discussed here, that such encouragement prevails?