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12 October, 2010

Stewart Baseley - HMI 2010

Good morning Ladies and Gentlemen and thank you Imtiaz.

Imtiaz is here of course today in his capacity as chief executive of NHBC, who are sponsoring today’s event once again for which we thank you.. NHBC do a great deal to support HBF and the industry in general, something that has been exemplified this year by two significant milestones. The introduction in April of the Consumer Code; and a set of Customer Satisfaction results that surpass any we have seen before - two initiatives that clearly demonstrate the value of NHBC and HBF working together.

Every year when I’m preparing for this event I always look back to what I said the previous year and it never ceases to astound me how much the world in which we operate has changed.

The main determinants of how successful our industry is – the wider economic climate and the political agenda particularly with its implications for  planning policy  seem to have been in a constant state of flux for so long now, it’s  difficult to keep up.

This time last year the market had stabilised having emerged from the deepest downturn most of us have ever experienced.  

Today, we face more uncertainty that is having an impact on consumer confidence and our businesses, as people digest the daily news reports of cuts and more cuts and, quite rightly worry about the impact on their jobs and their families. 

Last October, John Healey addressed us as housing minister, having succeeded Margaret Beckett , in what had seemingly become an annual procession of new faces. This constant swapping of ministers was something I criticised  the previous Government for as it made our job at HBF so much more difficult. We seemed to be forever helping to get ministers up to speed on their brief, and then, as soon as they were aware enough of our issues to take the decisions that needed to be taken, they were moved on.

So I’m very glad that we have one constant from last year – Grant Shapps, this time back as Housing Minister and with more than 3 years experience in the housing role in opposition.

Now I think you probably are aware that Grant and I don’t agree on everything, but one thing that I have no doubt about is that he is genuinely committed to increasing housing supply and is almost evangelical in his belief that his localism policies will do just that.

Over the past year or so we have built strong lines of communications not only with Grant Shapps and his team, but also with a range of other influencers within various Governmental departments and beyond.

Sometimes I feel a bit like a high wire act at the circus performing a delicate balancing act between on the one hand expressing the frustrations I know our industry is experiencing - particularly with Local Authorities who have taken Mr Pickles letter of May 27th as a green light to stop or slow down development - and on the other hand my very strong belief that we will ultimately represent our members best by ensuring we have a seat at the table so our views are at least heard.

But clearly getting them to understand our views and act on them can be two very different things. Despite the bridges we have built, the very real challenge of localism will mean these relationships, and the discussions, will at times be strained and difficult.

The road ahead will not be easy and I will come back to Localism shortly.

I do hope that now Labour’s seemingly endless leadership contest has finally concluded, the successful Miliband brother can pull his party together to act as a proper opposition. I was encouraged that in his acceptance speech Ed Miliband referred to housing as one of the key issues his party must address. Caroline Flint, who is now shadowing Eric Pickles at CLG, is of course well known to us from her short stint as Housing Minister – and other members of the opposition CLG team also have a knowledge of and interest in housing. This matters. It is important that we have a credible opposition with strong people in place to challenge the Government’s position on the key issues that we face.

 

And those issues add up to a long and seemingly ever expanding list. It  would take until tea time tonight to talk about the  sustainability agenda, the excellent work of the zero carbon hub, the still awaited definition of zero carbon homes, the burden of regulation and red tape, the demands of section 106 agreements, the impact of CIL,  affordable housing policy, all of which have a huge impact on land viability; not to forget changes to Building Regulations, mortgage availability and the lack of high loan to value products  - and now the threat of further FSA inspired  mortgage regulation, housing design guidelines, the role of CABE etc etc…. the list goes on and on.

In my 5 years at the helm of HBF, I have never known such a daunting array of issues.

But, you’ll be pleased to hear that I have no desire to be dragged off stage by Imtiaz, John White, or indeed any of the other excellent speakers that follow me today, so - despite the enormity and importance of the issues we face - I will try not to go on for too long.

 There is though no doubt in my mind that this country has a major housing crisis.

The facts are stark. We are building fewer homes than at any time since the early 1920’s ignoring WW2 ;  and as a consequence of over two decades of under provision we now have a shortfall we estimate to be approaching a million homes.

And although demand is high and aspiration to own remains as strong as ever, a lack of mortgage availability has seen the number of First Time Buyers – the bedrock of the housing market – plummet to record lows.

It is not that in many cases people can’t afford the mortgage repayments – clearly some can’t, but that has always been the case. There are many couples out there with joint incomes approaching £50k who could service the mortgage on a £200k home. But the deposits that are currently required to get such a mortgage – typically around £40 - £50k or 20/ 25%  – has seen the average age of an unassisted first time buyer rocket to 37. Remarkably about 25% of 30 year olds are still living at home with with Mum and Dad.  Nearly five million people are now on Local Authority waiting lists – that’s 1.7 million families; and Shelter estimates there are 1.6 million children living in housing that is either overcrowded, temporary or run down – or indeed all of these.

This is simply not a tolerable or sustainable situation, and no Government of whatever colour can afford to allow it to persist in a civilised society.

It seems extraordinary considering the stats I have just listed that we spend most of our time at HBF working tirelessly to create a climate in which companies large and small can do what they do best and build more homes.  Homes which add value to the economy; create jobs – every 10000 new homes equates to about 60000 real jobs directly or indirectly employed in the process; homes that we know from our own customer satisfaction survey people aspire to own, with this year’s remarkable results that I referred to earlier  showing that nearly 90% of buyers are satisfied in every sense and would recommend their builder to a friend; homes that already generate 60% less CO2 than those built just a decade ago and that’s long before we get to zero carbon standards; homes that are clearly desperately required if we are to tackle the country’s acute housing shortage and satisfy the aspirations of the population as a whole.

So why are we in this mess? And what can be done about it? It really comes down to the economy on the one hand and the planning system on the other.

Over the past few years output levels have dropped to such historically low levels primarily because of the wider economic downturn we have seen. Incredibly, it is only three years since we witnessed people queuing in their thousands outside The Northern Rock desperate to withdraw their savings fearing it was on the brink of collapse, scenes that precipitated the subsequent economic crash. The impact this had on the availability of finance to both consumers and businesses, and subsequently on consumer confidence, and the resultant reduction in demand, saw building levels plummet.

Sadly, over those three years, house building companies large and small and many suppliers of materials and services to our industry had to lose many valued people; offices were closed, regrettably some firms went to the wall and many of the people who were made redundant have now left the industry permanently – so be clear this is a reduction in terms of industry capacity it will take many years to recover from.

It is fair to say that the previous government did provide us with some assistance in the form of a range of initiatives largely delivered by HCA under the excellent stewardship of Sir Bob Kerslake, who I was pleased to hear will be taking over the helm at CLG on Nov 1st – we shall of course hear from Sir Bob later. HBF was heavily involved in suggesting and developing many of these ideas – in particular Kick Start and Home Buy Direct.

Homebuy Direct was a simple shared equity product designed to help the real victims of the mortgage drought – First Time Buyers.

It worked. So much so that we estimate during its 15 month life, which ended last week other than where it lives on within Kick Start schemes, it accounted for about 10,000, or about 9%,  of all new home sales. We are working overtime to try and persuade Treasury that a product like this is essential until the mortgage market improves. We wait anxiously for next week’s CSR announcement to see if any money can be found to continue HomeBuy Direct in some form from next April.

Clearly we have to be realistic. We fully understand there is little money to go around. But in our view, schemes like HBD and many of our other proposals to Treasury should be regarded as an investment in our country’s future.

We have also been discussing with our larger members, lenders, insurers  and sources at Treasury, the reintroduction of a Mortgage Indemnity Insurance scheme. Such a move would provide certainty for lenders and so hopefully encourage them to lend at higher loan to value ratios.

Whilst a shared-equity successor to HomeBuy Direct would be very important; it tends to be taken up in the main by larger home builders whereas Mortgage Indemnity Insurance policies, by contrast, could assist home building companies of all sizes.

Taken together HomeBuy Direct and a Mortgage Indemnity Insurance scheme would clearly help get more First Time Buyers onto the housing ladder.

We have also been pushing hard for other measures in the Spending Review.

Land supply, for example - the lack of available, developable and viable land being one of the major constraints on housing supply. 

We believe, in the current economic conditions, there is an ongoing need for a scheme like Kickstart to unlock mothballed sites. Like HBD it has been hugely successful and has seen work start or about to start on around 325 previously stalled sites that will result in total in the construction of around 25,000 new homes - and in the process generate around 150,000 jobs.  In addition, we estimate that public investment in Kickstart generates approximately three times that amount in private investment.

The public sector controls between a quarter and a third of all potential residential development land, and with the desperate need to reduce the budget deficit and public borrowing, we are suggesting that public sector bodies should be required to review their holdings and dispose of any surplus land. This may take the form of outright sale or deferred receipts to share in future land value uplift – either way, if it results in more land coming forward, it would be a significant boost.

We have also been urging the Government to undertake a detailed review of all policies and regulations that have an impact on residential development - including those imposed by local authorities and by policies such as zero carbon. House building sites are no longer the cash cow they were- and will not be for a very long time to come - yet too often demands are made with little or no assessment of their impact on viability or housing production. With the new emphasis that Localism places on Local Authorities, it is imperative they appreciate the impact they have on whether sites can be taken forward or not.

And so to the new planning system.  As I said earlier, the Conservatives’ ideological commitment to Localism became clear long before the election. And whilst we warned for many, many months, both publicly and privately, of the dangers of implementing such a radical shift without robust transitional arrangements – we cannot say we didn’t know it was coming.

 

Don’t get me wrong, the old system was far from perfect. But it did at least provide both developers and Local Authorities with some levels of certainty.

In scrapping the basis of the old system – the Regional Spatial Strategies - barely weeks into office, without providing any clarity on the detail of the ‘New Homes Bonus’ incentive-based system they propose will replace it, they have left a policy vacuum that threatens to disrupt supply still further, and is causing concern across the board.

My overwhelming observation, having watched how Government works at close quarters for the past five years or so, is that it is clear despite being a coalition this is a radical administration. It has its own agenda and its own way of doing things and its culture is very different to the last Government. Its natural instinct is not to automatically take action to resolve issues – rather its approach is to devolve power and decision making away from Westminster to communities and local authorities.

We should be in no doubt therefore about the seriousness of their intention or the radical thinking behind the strategy. They are not going to change their minds on the principle of Localism. It is etched deep in the Tory party’s psyche, and in my view the debate about the Big Society has only just begun – indeed in some ways housing and local planning policies are at the leading edge of that process. 

So hoping that we will somehow return to the old world is simply not going to happen  and in  my view criticising Localism as a concept   will be  counterproductive and  merely cut us  off from the decision makers. We need to show them we want to work with them to find a way – if at all possible - of making Localism a success. As with everything else in life you can either regard it as a threat or an opportunity.

My personal view is that I can understand why Grant believes Local Authorities will realise they need the income the proposed incentive will provide, as cuts in Central Government funding to Local Authorities will mean they have to think carefully about turning down such revenue.

But where I differ from Grant, is that I think it will take some time for that penny to drop – and he has bet the farm on the penny dropping very quickly.  Shapps of course says it is too early to tell how many homes the new system will deliver – if he’s told me once he’s told me a thousand times to judge the Government over the lifetime of a parliament  and measure the number of homes built versus the last Government  – but it’s a high risk strategy and the stakes are very, very high.

I think the Government has seriously underestimated the strength of anti development feelings amongst local politicians. In my opinion many Councillors have gone into politics, and subsequently been elected, purely on an anti-development ticket and I fear this will result in developments getting rejected across the country for some time to come.  I am not convinced the Bonus will be anything like enough to persuade them otherwise.

Eventually of course, if Localism is going to succeed, we will need Councillors to become pro-development, and for people to seek office in order to get something done rather than stop it. But we are a long way from that, and in the meantime we must adapt and find a way of making it work.

HBF and individual companies need to become more proactive. The Localism agenda is going to require house builders large and small to develop a new set of skills as they work out how to get better at their own local level lobbying and community engagement. With communities and Local Authorities now the ‘Kingmakers’ they will need to learn quickly, as the days of negotiating for planning by a rule book and appeals process are largely gone.

And it’s not all bad news. Gone are the ridiculous density requirements first set out in PPG 3 that led to a huge oversupply in flats, particularly in city centres, over the past decade. ’ 

As well as house builders having to develop new skills, we at HBF have also been evaluating our strategy. By common consent having established our credibility with Government over the past few years we have been reasonably successful at national lobbying. And we will continue to be very active nationally as although more power will be devolved to Local Authorities, the detail of the forthcoming Localism Bill, supposedly due in November, and the consultation on the New Homes Bonus, will both be vital.

But we realise we need to get smarter at influencing local authorities and local communities as well to help them understand the responsibilities they now have. We can never of course become involved on individual sites, but we are working hard to ensure Local Authorities - for whom all this is new too – are aware of the implications of scrapping proposed housing developments, as many have done since Pickles’ announcement about the RSSs. Last week I saw a newspaper article suggesting that since May some 300,000  planned homes  have been or were likely to be dropped . That’s a run rate of around 1300 homes per day and when you balance that against some of the depressing  statistics I mentioned earlier, it’s clear we have a problem that is potentially getting worse.

Consequently, we have been meeting with Local Authority chiefs to detail how the new homes bonus system will work – as far as we know that is. And we have also been using the local media to ensure communities are aware how much funding its Local Authority is forsaking by reducing its house building plans.

As part of this strategy we will also be targeting our public messages at ‘Middle England’’, to try and help them see the link between their inbuilt anti-development stance – NIMBYism - and why their middle aged children are still living at home. If we can make that penny drop, and mobilise the sizeable and increasing percentage of the population being thwarted in their ambition to own a home – or the banks of mum and dad that are being drained as a result  - then local councillors and local authorities must surely  ultimately take note.

As I said at the beginning of my speech, much has changed. And I fear that when I stand here again – God willing – in 12 months time, I will be reflecting on another year when the factors that determine the success of our industry, have been unsettled and erratic.

I do fear that an uncertain economic outlook, continued mortgage restrictions and a radical new planning system will prevent volumes rising at anything like the levels the country’s housing crisis demands.

But I have no doubt about the remarkable resilience the house building industry displays despite the continually changing agenda.

The fact that any of us are still here at all after the knocks we have had to take over the past few years is testament to that.


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