This year’s model

H+H’s MD Calum Forsyth suggests that the housing delivery model could benefit from radical rethinking.

Top of the agenda for new Housing Minister Dominic Raab must surely be the conundrum of how to build enough houses to meet demand. I have a suggestion: perhaps we should shake up the delivery model a bit and change the way new housebuilding is planned, financed and owned?

There is a consensus that we need to increase the rate at which we build in order to keep pace with the number of new households created each year. The target number varies depending on who you listen to, but it seems to be around 250,000 new homes each year.

The fact that we are anywhere near that total is down to private sector developers and, critically, Help to Buy. It was a fantastic idea, providing a much-needed stimulus when it was most needed in 2013 and has proved to be a continuing success story. However, the pity is that it remains the only stimulus to new housebuilding and there are dangers inherent in that.

Essentially the scheme subsidises already relatively wealthy people to take on huge mortgages, with the Government shouldering quite a lot of the financial risk. By making these substantial loans possible, it could be argued that the scheme has really fuelled the increase in house prices and done very little to help the ‘just about managing’ households, and nothing at all to address the needs of the 77,000 families currently being housed in emergency accommodation. It is an absurdity that average house prices in the south east are now 10 times the average salary.

In addressing the housing shortage, the Government has asked private developers to provide the solution. The large housebuilding companies that dominate the market have certainly increased their rate of build – and posted excellent financial results as a consequence.

But the problem with using this single delivery model is that the large private housebuilders are just that: privately owned companies whose duty is to provide a good return for their shareholders. It therefore makes no commercial sense for them to focus on actually matching supply and demand.

But price is not the only problem with this ‘single bullet’ approach to the housing shortage. An over-reliance on heavily mortgaged new housing means that the entire industry is dependent upon consumer confidence and the generosity of lenders. A shock on the economic horizon – think Brexit and a significant corporate bankruptcy – and the major housebuilders can stop building very fast indeed.

Wary of the potential volatility in the market, housebuilders have developed a business model with the lowest possible risk and with a very short-term outlook. An industry reliant on subcontracted labour employed on short-term contracts is not one looking to invest in training, development or innovation.

We will never meet the demand for new houses, or make real headway on innovation and quality improvements, while delivery is exclusively the province of the major private sector housebuilder. It would surely be a more consistent, dynamic and progressive industry if there were a range of delivery models in operation.

It is worth remembering that the last time the UK was building 250,000 homes a year was in 1978 when councils built 44 per cent of the new homes. In light of this, it was very encouraging to hear the Prime Minister announcing a £2bn injection of cash towards council building last autumn.

It was also good to see the reforms to the planning law in the Neighbourhood Planning Act to allow for a more robust approach to freeing land for development and moves to reinforce the power of compulsory purchase.

This is very welcome, but there is also the challenge of reducing delays between planning consent being granted and the completion of the development. One way to address this issue is to rebalance housebuilding to encourage more SME builders back into the market.

It is great to see the Government now also recognising this as an issue. Ensuring that a percentage of all large development plots are reserved for custom build projects and SME developers is an excellent start that is beginning to have an effect.

And finally there is the potential for a growing Build to Rent market. We need to get back to the point where housing is affordable, but a dramatic fall in the value of housing would be politically unacceptable. If we can balance supply and demand to stabilise house prices, there is a clear possibility that inflation will gradually narrow the affordability gap.

In the meantime, perhaps the emergence of a stronger private rental sector will provide a solution. With strong demand over the long term, surely housing provides an attractive option for investors.

I very much welcome any signs of a Government commitment to diversifying the housing delivery models, as I believe that reforms to delivery and ownership models will reduce volatility. In a more stable market there is more incentive to invest, and investment in innovation, production and skills are very much needed in the UK housebuilding sector.