Challenges facing the housebuilding sector in 2008 Introduction: certainty and clarity Thank you Imtiaz for your introduction I am delighted to see so many people here for this the 5th Housing Market Intelligence conference, the largest and most comprehensive to date. The theme of the conference is ‘developing strategies in the face of rapid change’. This last year has certainly seen huge change in the regulatory and commercial environment within which we as homebuilders have to operate. When I stood here last year, I welcomed the fact that following years where HBF’s call for new homes - embodied in John Stewart’s seminal ‘Building A Crisis’ report - was a lone voice in the wilderness we were now at the centre of a new consensus on housing. A consensus focused on increasing the quality and quantity of new homes. A consensus that reflected both a new pragmatic attitude to working with Government on the part of the industry and a recognition on the part of Government (and to a lesser extent the Opposition) that change was required if we are to deliver the new homes so desperately needed in our country. In the last year we have seen more clarity of Government policy intent – with the Prime Minister’s serious application to housing as a priority issue and Yvette Cooper’s attendance at Cabinet. We now need more certainty of delivery of key planks of the reform agenda to convert these intentions into practical reality. The scale of the challenge to meet targets on quantity and quality (including zero carbon) are huge. They are on a scale we simply haven’t seen in homebuilding since the Macmillan era. Unlike the Macmillan era – where volume growth to 300,000 homes per year was achieved to meet the housing aspirations of a new generation, this generation of homebuilders has to contend with a scale of regulation and inflexibility of a planning system which threaten our ability to deliver growth to 240,000 per year to meet projected demand . Before I turn to them let me begin by giving you a snapshot of the current state of the industry. Fundamentals of the market and consumer demand In the housing market certainty can never be taken for granted. This has been a year of solid performance from the industry. We have continued to respond to consumer demand with flexibility and adaptability. The 20-25% increase we have seen in homebuilders output since 2002 has happened in the face of the current rigidities of the planning system. And I am an optimist that the housing market can remain stable as the fundamentals in this country are right. Despite the short-term hiccoughs following the uncharacteristic scenes of savers withdrawing their cash from the ‘Northern Wreck’ in response to the US sub-prime mortgage crisis and the ensuing world credit crunch the medium term fundamentals of the housing market are stable and strong. In this new economic paradigm of full employment, historically low interest rates, controlled inflation and relatively strong underlying consumer confidence homebuilders continue to deliver good rates of return and strong performance in an increasingly competitive market place. And encouragingly, the public’s aspirations to own their own home remain strong. A recent YouGov poll commissioned by the New Homes Marketing Board revealed in the last week that 83% of people, - who wish to buy their own home but are unable to do so at present are unhappy at the prospect of having to remain in rented accommodation. The strongest degree of aspiration was found among the Facebook generation – those 18-24 year olds – in political parlance first-time voters who the same poll reveals – are looking to the Government and home builders equally to respond to the shared challenge of ensuring that affordable homes are available to first-time buyers. Our industry is responding with innovative low-cost products – we need the Government to respond in recognising low-cost market housing as ‘affordable’ . Through new financial products, new incentives to assist affordability and, crucially, the right level of supply of new homes in areas of greatest demand, we can deliver the range and variety of new homes demanded by British consumers. We are also looking for Government leadership to continue to assist consumers where they can. The same consumer poll also indicates strong support for Government to consider financial incentives to assist first time buyers (such as exemption from stamp duty, and other tax breaks) with 78% of those polled (which included parents and friends of those struggling to get a foot on the property ladder) affirming support for such measures. If the Government was in any doubt of the public demand for these reforms then the reaction to the Conservative Party announcements on stamp duty should be a timely reminder that further action is required. Whilst the public’s aspiration to own their own home is undented it is balanced by a generally pessimistic outlook among those who see the cost of housing as a problem. A worrying 85% of these people feel that the problem of housing affordability is increasing rather than decreasing and we all – industry and Government - have a huge task on our hands to demonstrate that we are tackling this important issue. We cannot afford to be complacent – nor are we as we face a series of challenges – some old, some new, (some borrowed and dare I say it perhaps in time, some blue ?) – many of which we cannot meet alone, but which require concerted action across our industry and government. The scale of the quantity challenge There has certainly been no shortage of Government policy in the last year, with much aimed to help ensure increased supply. My team at HBF has been running to keep pace with the constant flow of consultations: the Planning White Paper, new Planning Policy Statements on climate change, PPS 3, the Energy White Paper, the review of building regulations, discussions on an effective alternative to a Planning Gain Supplement, plans for the new Homes and Communities Agency, initiatives on water and energy, and of course the Housing Green Paper, Callcutt Review and most recently the OFT inquiry. I have to say if I struggle to keep up with this volume of policy and regulatory activity and it is my day job to do so - then I am sure for you as homebuilders it must be even tougher keeping up. Throughout, we at HBF have sought in our dealings with Ministers and officials to keep the focus of Government on the fundamentals – removing the structural barriers to development and focusing on business-friendly solutions. I said last year, and I restate now, that we support the Government’s stated objectives to increase the rate of home building. But we will measure policy against whether it will bring more land forward for development and whether it will simplify and speed up the planning process. We simply have to deal with the built-in bottlenecks in the planning system that create a structural lag in the system that can see years of delay from agreement of regional plans, through adoption of local plans with identification of specific sites, through to consents for development. In one case we have seen a significant site in the South East identified in the local plan as long ago as 1996 to meet demand for the period 2001-6 which only finally received workable consent in 2005 and building did not commence until the last year of the plan period. Without decrying the clear need for democratic consideration of where homes are best placed and how development in our towns and cities should best be shaped – once the decision has been taken on where the sites are we must speed up the process of bringing those agreed sites to development. You won’t be surprised to hear me say that the most important issue facing housebuilders remains what must be a shared national challenge of providing sufficient land for future housing growth. I know at times we run the risk of sounding like a broken record, but I make no apologies for this. No amount of misinformation on landbanking from serial opponents of homebuilding or indeed blanket defence of the planning system that pretty much everyone agrees is not delivering can take away from the practical reality that without more land with implementable planning permission we simply will fail to keep pace with housing demand. For some this is an unpalatable truth, but the hard evidence on land supply is irrefutable. The Prime Minister’s challenge to create 3m homes by 2020 is both a convenient round number and a splendid soundbite. We should not underestimate the scale of the challenge we all face to build more homes simply to keep pace with current and projected demand. Let’s be clear. This is a huge challenge. Allow me to illustrate. The current Regional Spatial Strategies as they stand today are at best planning for 203,000 homes per year when at the very least we need 240,000. At present completion rates of 170-180,000 net additions to stock you can see we are already a long way short of even the existing more modest projections of need. 2m by 2016, 3m by 2020 is a tall order. And I fear that progress will be slow because of in-built delays to identifying the new sites. Most regional spatial strategies will not be reviewed until 2011, so it could be 2013 until we see the additional sites coming through the planning system. To bring it closer to home, take the South East Plan – the biggest and most important test of Ministerial resolve in making the changes necessary to deliver the growth required. To meet the new national targets we would need to see at least a 30% increase in the planned housing numbers in the new SE Plan but – and here’s the rub – the Panel report on the draft South East plan is only recommending a 10% increase – well short of the numbers required (and even this is fiercely resisted by the opponents of development.) It is vital that Ministers don’t bottle this litmus test in responding to the South East plan . Of course we welcome the strong words from Ministers - but we will need to see this followed through with stronger actions that will ensure that local opponents of essential housing growth aren’t allowed to get away with hiding behind spurious excuses to resist making the sometimes difficult decisions required to identify sites for development. Hitting a moving target is hard enough – doing so without all the strings in your bow virtually impossible. We need to know that Government can will the means to housing growth as well as the ends. So we demand rapid change not for change’s sake but because without it we simply will not see the radical increase in housing numbers that the Government’s target demands. Any change can be threatening. Changing the planning system in a country that sees town and country planning as a pillar of a post-war settlement positively earth-shattering. But we must pursue this change with absolute resolution or run the risk of locking a generation out of the property market. On reflection I was personally disappointed that the planning white paper misses the piece in the middle on housing development and I will explain why. Yes, the Government understands the need to show resolve in speeding up the process of planning for much-needed major infrastructure projects with new powers to act and new levers for Ministers to pull. And at the other end of the spectrum there is much to applaud for enabling people to extend and adapt their homes more easily. But there is a gaping hole in the middle. We are as a result critically dependent on Ministers’ commitment to stand behind the effective implementation of PPS3 and incentives such as the new Housing and Planning Delivery Grant. Welcome though these are, they will need therefore to ensure there is the same level of resolution applied to unlock land for housing as to other aspects of the White Paper. Let’s not kid ourselves that we can go anywhere near meeting the volume of future demand simply by getting smarter at releasing public sector land (though Departments do need to do this) or creating eco-towns. The Government’s own targets indicate that these initiatives will only create a small proportion of the of the 3 miilion homes we need by 2020. As housebuilders, let us be clear, we are not in business to tick Government boxes. I don’t know about you but I joined this industry to run a successful business building homes that customers want, delivering shareholder value and being rewarded for hard graft. Of course we can only do this if we run businesses that deliver homes of sufficient quality and of the type that meet consumer demand. In a fiercely competitive market with evermore discerning customers the primacy of the consumer has never been stronger. I am frankly fed up with being put on the defensive in representing an industry that makes a massive contribution to the UK economy – both directly and indirectly. Some time ago, we calculated that homebuilders contribute an average of £15,000 per new home built through planning agreements alone – an investment of 10% of the value of the development for every home built. And yet to read some commentators we are portrayed as a negative influence engaged in some kind of conspiracy to thrust more homes on an unsuspecting public. It is right that we make that contribution to wider society. It is right too that the Government develops a better system than planning gain supplement – we have argued for a local tariff-based system - that provides a degree of consistency and certainty for homebuilders in raising funds for investment in infrastructure. We are looking to the Chancellor to indicate his support for a tariff approach in today’s Pre-Budget Report. We know we need to do more to increase customer satisfaction levels. As we develop our code of conduct and take our customer satisfaction survey to the next level – making it larger and with greater transparency we are mindful that we need to win people’s hearts as effectively on housing quality as we have won their minds on supply. We are an industry that depends on high consumer confidence in our product given that we are selling against a competitive second-hand homes market. The Office of Fair Trading’s market study will keep the challenge of increasing the standards of new homes in the media and political spotlight over the next twelve months. We have taken the OFT challenge seriously. Whilst the timing of the inquiry would not have been of our choosing, we at HBF have cooperated with the study and sought to inform the OFT in their deliberations on the planning system and on quality. And of course homebuilders – unlike many other industries - have broader corporate responsibilities too. Many of these relate to the quality of the homes we build – their design and their sustainability. We must and do take those responsibilities seriously. But, coupled with the challenge to increase supply, the challenges on quality are equally demanding. The scale of the quality challenge Nothing demonstrates our commitment to quality more clearly than our commitment work with the government to create a framework to deliver higher environmental standards. .A year ago, at this very conference I set out a framework for higher environmental standards to be developed in partnership with the Government A lot of water has passed under the bridge since that conference - Reaching zero carbon is a hugely ambitious target – more ambitious than any country on earth – if we are to achieve it we need to avoid the (often political) urge to fast track to an unknown destination – this may be done with the best intentions but the end result will be to derail the zero-carbon process. Reaching zero carbon as soon as realistically possible should not be at the expense of reliability. New technology needs to be thoroughly tested first before it can be rolled out on the national scale. It must also be matched to the right area. Some renewable technology will simply not be effective in some areas, so developers need time to find the best match possible, ensuring it is effectively connected to local energy supply networks as well. Crucially, zero-carbon housing must be affordable. At a time of escalating house prices, what consumers do not want is environmental measures adding tens of thousands to the cost of new homes. Lower costs will come with economies of scale, but these take time to build up. We need to ensure that engineers have the right skills and the supply chain will also need to hugely upscale their efforts in order to deliver these new homes. The response from some has been depressingly predictable with our opponents praying in aid the so-called Merton rule as a new kind of totemic Golden Rule which we should all obey despite the fact that in many areas its application will merely serve to set back development of the very zero-carbon homes it is ostensibly designed to promote. While the Minister’s response has gone some way to reassure us we still need stronger resolve to demonstrate that our agreement is deliverable and will not be undermined through a misguided nod to localism. We need to see an end to ambiguous statements on the Merton rule and further clarity in the forthcoming Planning Policy Statement on Climate Change. Conclusion Had we faced an election campaign this week HBF would be restating to the Prime Minister points we put to him on his elevation to that office in June. They remain our priorities as they did then: More land with implementable planning permission Reform of the planning system to reduce complexity and speed up decisions An easing of the burden of regulation on the housing industry A maintenance of the national target framework for zero-carbon homes, resisting the development of a multiplicity of confusing, unachievable local targets Freedom for developers to respond to consumer demand with the range and types of homes they need. We have a once in a decade opportunity to set in place a long term framework of delivery to meet the housing needs of a whole generation in a sustainable way. If we miss this opportunity future generations will never forgive us for failing to create a long-term legacy of greater home ownership. Making this investment is I believe worthwhile. In the fifties MacMillan’s housing programme paved the way for the generation that had never had it so good. Today’s young people risk never having it when it comes to housing. As an industry and a nation we simply cannot afford not to tackle this looming problem. As you all take time out of your hectic schedules to discuss your strategic responses to the challenges I have outlined I hope you will gain practical insights and be inspired to apply them in your businesses at this critical time in our industry’s history. Thank you. Ends
