After a year has passed, Brian Berry revisits the Housing White Paper and contemplates the future of Government housing policy.
It was about a year ago that the Government released its Housing White Paper which set out its plans for the housebuilding industry. So, now might be good time to quickly recap on where Government housing policy is going, with some of the key themes which emerged from the White Paper and some important announcements which have come since, including in the Budget at the end of November.
Some of the highlights of the White Paper included a much greater focus on the role of small sites in housing delivery, proposals to increase planning fees to tackle under- resourcing of planning departments and the outlining of the new Housing Delivery Test. The latter will give councils more responsibility, not just for ensuring sufficient land supply, but ensuring that land supply is actually delivering the homes it is intended to.
In the Budget the Government went even further than this and has now said that it will consult in 2018 on a requirement for local authorities to bring forward 20 per cent of their housing supply as faster-building small sites. This would effectively force local planning authorities to actively look at ensuring an ongoing bank and pipeline of small sites. This could be genuinely transformative in terms of improving the supply of sites suitable for SME housebuilders.
These measures on small sites are important because as the FMB’s House Builders Survey has consistently showed, the “lack of available and viable land” is the most widely-cited constraint to small housebuilders being able to increase their supply of new homes. The second most widely-cited constraint has been access to finance.
SME firms first began reporting severe difficulties in accessing the finance they need to build during the financial crisis of 2007-08. Major lenders sought to reduce their exposure to the property sector, and have had higher capital costs imposed on them when lending to the sector. To the extent that the situation has reportedly improved somewhat for some firms in the past three years, this appears to be primarily due to the increased prevalence of specialist lenders, ‘challenger’ banks and alternative funding institutions, for example peer-to-peer lending. While this is definitely a positive, this finance does tend to be more expensive and continues to be limited in scale.
As such, it was very welcome that there were a number of major announcements in the November Budget, designed to tackle specifically this problem. For starters, the Chancellor announced a further £1.5bn for the Home Building Fund. The Fund appears to have been, unlike previous Government funding schemes, a real success. There have been large numbers of enquiries, a large numbers of deals have already been done, and the Fund has a healthy pipeline. FMB members have generally voiced their approval of the scheme. The Fund is much more flexible and more tailored to the needs of SME builders. It is more akin to old-fashioned banking in that the lender is prepared to judge the scheme and company on their individual merits, and sometimes to invest time in understanding the market in more specific or remote locations.
Perhaps even more significant however is the announcement that the Government will put in place of an additional £8bn of financial guarantees designed to improve access to finance for housing. For a number of years, the FMB has been calling on the Government to explore how we can provide greater encouragement to lenders to target more lending at the SME sector by reducing the costs and risks of this type of lending. At the end of last year, the British Business Bank announced a deal with the United Trust Bank (UTB) to put in place an ‘ENABLE Guarantee’. This is a mechanism which will reduce the capital costs of lending to SME builders. The FMB welcomes this initiative which will enable lenders to lend more to SME housebuilders by reducing the capital costs of doing so.
We would like to see the Chancellor continue to use the might of the Treasury to back initiatives such as the Home Building Fund, and the introduction of new financial guarantees. Improving SMEs’ access to finance is another vital plank to ensuring the long run health of housing supply in the UK.