Property developers should be encouraged by a determined UK government effort to boost homebuilding across the country.
Brownfield land development, community revitalisation, and new affordable housing projects have been allocated £1.8 billion.The Government’s ‘levelling up’ agenda has added further impetus: a £1.5 billion Home Building Fund now offers loan finance anywhere from £250,000 to £250 million for property and infrastructure development.
The situation on the ground, however, remains dangerous. Brexit and the epidemic have increased material costs by as much as 21% last year (according to the ONS), limiting access to labour, lengthening timeframes, and throttling access to finance for many. This is before the Russian invasion of Ukraine causes more problems in global supply networks for developers. In addition, the Environment Act 2021 imposes new biodiversity requirements and costs on developers.
“The Government subsidy to develop 1,500 hectares of brownfield land to create 160,000 new homes is an open invitation for developers,” says Stephen Clark of property development finance broker Finbri. “But the rising cost of materials and fuel, shortages of skilled workers, long delivery times and new environmental restrictions are hampering activity,” he argues.
Projects on pause
According to a recent research, over a third of developers had to halt projects in early 2022 as labour costs increased by 15% and building materials such as steel, lumber, and concrete increased by 23%. Interest rates will most certainly rise later this year.
Mayor Sadiq Khan of London has warned that rising costs and labour shortages are threatening the pace of housebuilding: some project costs have increased by 45 percent, and a survey by the Federation of Master Builders found that 40 percent of housebuilders are having difficulty finding carpenters and bricklayers. Construction vacancies are 60% greater than pre-pandemic levels.
“The twin effects of the pandemic and Brexit has hit both housebuilders and consumers hard,” says Khan. “The excellent progress we have made in delivering the good quality and genuinely affordable homes that Londoners need is at risk of stalling.”
Following a bitter feud between previous housing secretary Robert Jenrick and elements of his own party, the government has refocused on brownfield land. Jenrick advocated changing planning regulations to categorise land as ‘growth, ‘renewal,’ or ‘protection,’ and requiring local governments to build 300,000 dwellings every year.
After the Conservative Party suffered a shock defeat in the Chesham and Amersham by-election in June 2021, an estimated 100 Conservative MPs came out against the Planning Bill, fearing that residents and communities would be powerless to prevent building on local land. Robert Jenrick was sacked in September and replaced by Michael Gove, who quickly reassured MPs that he had ‘decided not to proceed’ with the planning changes, the Daily Telegraph reported.
Instead, when the Levelling Up and Regeneration Bill reaches the Houses of Parliament later this year, it will include planning suggestions. Gove committed to assist 20 regeneration projects across England, beginning with Sheffield and Wolverhampton, in his Levelling Up White Paper, published in February 2022, ‘transforming decaying urban sites into beautiful communities.’ He also allocated the majority of the £1.8 billion brownfield financing to Northern and Midlands areas.
A commitment to develop more affordable housing through a new Social Housing Regulation Bill, based on the lessons of the 2017 Grenfell catastrophe, and a reform of the Private Rented Sector to crack down on rogue landlords were also made.
While the 2021 Environment Act may exacerbate costs for some developers, it may also enhance demand for brownfield sites as developers look for ways to meet the new biodiversity net gain (BNG) regulations, which require biodiversity to increase by at least 10% over the next 30 years. This could include both brownfield sites suited for development and others where developers can improve biodiversity as a counterbalance to their other developments.
At least 23 proposals in 15 council districts, including Stoke-on-Trent (118 new homes), Hythe in Kent (150 new homes), Barrow-in-Furness (315 new homes), and Gloucester, will be supported by the government’s Brownfield Land Release Fund (BLRF) (180 new homes).
As these figures indicate, the money only covers a small portion of the potential scope of brownfield development in England, which experts estimate could add up to 1.3 million new houses across 36,700 hectares of brownfield land. They contend that the promised subsidies will only ‘scratch the surface’ of attempting to solve the genuine need for new houses
In his Levelling Up White Paper, Michael Gove promised that ‘By 2030, renters will have a secure path to ownership with the number of first-time buyers increasing in all areas.’ This bold pledge would build upon recent trends: first-time buyers staged a surprise comeback in 2021, with more than 400,000 purchases making it the best year since 2002, according to Yorkshire Bank.
To keep the housebuilding sector on track to meet the demand from these buyers, traditional sources of finance may continue to fall short. “The supply of credit to smaller businesses by many established big banks is drying up, leaving many SMEs needing to pursue alternative finance sources to fund projects,” says one lender, who anticipates that smaller house building companies will be excellently placed to satisfy new trends in homeownership prompted by the pandemic, together with the opportunities offered by brownfield sites.
Bridging the gap
Bridging loans and property development finance have already proved to be crucial as a replacement for the ebbing enthusiasm of large banks. As Vic Jannels, CEO of the Association of Short Term Lenders puts it: bridging is “an integral cog in the workings of the wider property market – saving transactions from falling through, enabling investors to buy, convert and refurbish otherwise unmortgageable property and providing a fast and flexible means of raising capital.”
At Finbri, Stephen Clark agrees. “The Government’s ambition to build more affordable homes is admirable and very welcome. Yet without reliable and flexible sources of finance, and against a backdrop of spiralling costs, it will be hard to achieve these goals and bring homeownership to a wider public.”