Plan for the housing industry next steps: Short Term
The housing industry in the UK will be a linchpin to economic recovery once the restrictions in place for the pandemic are lifted.
As the government looks to try to establish a clear picture of what the new normal looks like, they must acknowledge the role the place within which we have spent most of our time during Covid-19, our homes, plays within the economy.
The housing industry is an intrinsic and connected chain, with all elements having an effect on each other. We have seen prior to Covid-19 how too much focus on one element of the housing sector can negatively impact on other areas, especially when that focus is concentrated on only one tenure.
It is not a homogenous sector. Finance access, capacities and policy to help stimulate the sector must therefore be reflective of the understanding that one size doesn’t fit all and be flexible and applicable to all elements.
Builders are very dependent on sub-contractors, who are small operators in a system is highly at risk. Therefore, the housebuilding supply chain will be affected unless SMEs in the sector are supported. They all have contractual obligations and suppliers to pay. They are also reliant on merchants and suppliers, areas of the economy not always included into the equation of development, for example electricians, plumbers and even those who manufacture building materials, including bricks and timber.
Government must learn from lessons past by looking at what worked to help the industry recover after the global financial crisis, and EU exit uncertainty. They must also learn not just what worked and what didn’t, but how long these strategies worked for. Government must constantly evaluate their stimuli, to ensure they aren’t left within the industry too long and become bloated and inefficient.
RICS recommends the introduction of short-term interventions, across three key sectors, that can kickstart activity in the housing development. Once we see an uplift in sectoral confidence and output, the Government can then review the plausibility, and viability, of their continuation:
- Planning and development
- Home buying and selling, including home ownership
- Private Rented Sector
Planning and Development:
Cash flow
Maintaining cash flow is commonly cited as a main variable of businesses surviving long enough to participate in the UK’s recovery from Covid-19. Cash flow in the development and housebuilding industry, in line with other commercial sectors, is a key concern. Whatever measures Government are considering to support business also needs to be rippled through the housebuilding industry, especially given its specific requirements.
One such requirement is the large number of self-employed participants throughout the development supply chain, for which cash flow issues can hugely affect the ability to earn a living or pay suppliers and others within the chain. Ensuring these issues are mitigated will help prevent fiscal stress for the self-employed or SMEs who otherwise may take the decision to leave the industry.
Government has now indicated its intention to facilitate deferment of financial obligations to address the cash flows of SMEs in the development sector through deferment of CIL obligations. RICS supports this measure, as it will reduce the financial pressure on SME builders as they restart after Covid-19, while not depriving local authorities of much needed infrastructure income.
Planning
The UK has a planning led development system which is different to the way in which many other nations approach their housebuilding needs. Our system does not reflect a presumption for development even if planning is given. However, to many people within these communities, planning does equate to development, so there is concern when homes are not delivered, or sites sit empty. Much of the issue around delivery is the complex nature of our system and the many hurdles housebuilders must overcome to get shovels in the dirt.
Government has signalled that they recognise the need to reform the planning process. We would welcome any opportunity to work with them to improve the system, including on ways it can be streamlined and can work holistically alongside the housebuilding agenda. Many of the improvements needed will take time to embed, but most importantly, any changes must arise from a thorough review of all elements of the system. This will likely lead to some difficult decisions rather than tinkering around the edges or introducing short-term fixes that have the potential of causing long term problems. The time needed to embed such changes means the Government must start looking at planning reform now for the short term, with a clear timeline to introduce changes in the medium and long terms, with limited, drawn out reviews and variations.
As we emerge out of lockdown, there will need to be flexibility in the planning system, especially regarding approvals that happened, or were in progress, before Covid-19, to reflect that circumstances and needs may have changed. There may be a necessity to re-evaluate mixed use developments, especially as the need for workspace and commercial property are reassessed with more people possibly choosing to work from home. Or changes focusing on more mixed tenure reflecting the desire for more purpose-built homes in other tenures, especially build-to-rent.
Government must start to look at temporary changes that allow for initial flexibility. They can also utilise the recovery period to pilot new planning initiatives, including more prescriptive planning and a focus and priority on developments that deliver placemaking.
Home ownership:
England has now reopened their housing market, while (at time of writing) all three devolved nations have not clarified whether their home buying and selling industry is open or what elements can currently operate. The reopening of the housing industry in England has allowed for the whole chain reactivate, and those wishing to move are be able to do so, including those into new tenures or within their current tenure.
Learning from the 2008 recession, an important component of a housing recovery is consumer confidence, both in the sector and within individual’s own circumstances, especially financially. In any uncertain times, people will naturally become more cautious which means that what worked before the UK went into lockdown may not necessarily be what people want from the housing market now.
Households have been confined within their homes for around three to four months and have been experiencing how their home meets their needs in many different ways than it did before lockdown. For example, some people may have found home working meets their needs better than travelling into an office. They may also have noticed capacity issues on the size of their homes, including the need for extra space for home offices, home gyms, or they may just want better interiors including new kitchen or bathroom. Their confidence within their own financial abilities will be a factor on whether they decide to therefore move home or renovate, extend, or retrofit their current home.
Choosing to stay within their own home is likely to be the safer and more conservative approach, especially in the short term as we emerge from lockdown, and people start to grasp what the ‘new’ world and economy looks like. As home owners reappraise their current homes, many with a view to invest in its configuration or energy efficiency, this is a good opportunity for small and medium builders to gain work while the development industry starts to get back to normal, and an ideal time for Government to help meet their carbon targets.
There is significant carbon within the existing building stock, both operational and embodied, which can be mitigated and carbon savings made as outlined within RICS’ recently released Net Zero Policy Position Statement . We would urge Government to adopt the recommendations within this paper, especially as they pertain to renovations and retrofitting. This will help encourage homeowners to decrease the carbon in their homes, stimulate building in the short to medium term, and help the UK meet it obligatory targets.
There will be some people who wish to move but won’t feel comfortable or enabled to do so. Government must recognise that whilst they took many steps to help the economy maintain itself while we were lockdown, support will also be needed to help stimulate the economy and bring it back to life. One such measure RICS has called for is a temporary stamp duty holiday to help confidence in the home buying and selling process and help those who may want to move but are cautious in doing so, and may be waiting to see what the future holds. It would demonstrate Government’s confidence within the sector and the economy and a desire to get the country moving again.
The lowering of loan to values just before the housing market reopened has put an impediment on those wishing to move and may now make mortgages unviable to some people wishing to buy especially for the first time or to move to a new home. We would not want to see affordability issues, which were present before Covid-19, exacerbated by the ability to get good lending conditions. However, we believe that this was a reflection of caution during lockdown and includes the conditional valuations that our own members had to do based on the best information available without being able to physically view a property. The opening of the market, and the ability for surveyors to physically enter homes, will help alleviate this. But Government must ensure that they continue to engage with industry and monitor the situation to ensure home ownership doesn’t become out of reach for increased numbers of people due to difficulties in obtaining mortgage finance.
Private Rented Sector:
The PRS is a large and important sector, but it is also a sector devoid of clear and consistent standards and regulation. Government has continually intervened in the market by tinkering around the edges without actually addressing the fundamental issues the sector faces and, in some cases, they have made the tenure less favourable.
RICS supported the measures introduced within the first few weeks of lockdown to help tenants feel safe within their own tenancy, especially tenants who needed to defer their rent. By extending the freeze on evictions, Government has signalled that they want to protect tenants. What remains to be seen is whether these interventions will have actually helped tenants and the industry, or whether an unintended consequence of these measures will result in tenants facing worse conditions. Tenants must feel safe within their homes and feel safe moving, knowing that they won’t face harder access to homes due to landlords risk-mitigating in response to Government measures.
Despite multiple reports and studies, as well as the outcomes of Lord Best’s Regulation of Property Agents working group, the Government has not made any real progress in addressing the need for regulation and standards within the sector. We would caution the Government against continually interfering with the PRS in attempts to make it more suitable for social housing, instead of actually building to meet social housing need. The effort to remove Section 21 evictions without any changes to the courts is a misdirection of policy for the Government. We would urge that the Government does not go ahead with this policy without the required changes to the court system, otherwise this will not provide the security intended for tenants within the sector be realised.
If Government wants to improve the private rented sector, it must set the bar and officially determine what good looks like now as we move out of lockdown. Government must also be clearer about the responsibilities of tenants and landlords with clear guidelines and parameters for any rent repayment process.
Kindly shared by Royal Institution of Chartered Surveyors (RICS)
