The most wonderful time of the year
For those of us with an unhealthy obsession with housing statistics, November always proves to be a memorable time of year. Because the publication of the government’s Net Supply of Housing in England data occurs at a time of year when the nights have already drawn in, one feels completely justified ignoring friends and family when they foolishly advise you to take a break from the stats to go outside and get some fresh air or open the curtains to let some light in. And for me the occasion is even more special as it coincides neatly with my birthday. Truly wondrous.
The 222,190 net additional dwellings produced in 2017/18, was the second most for a single year this side of the millennium, still just a smidgen short of the 223,530 recorded in 2007/8. Last year’s numbers represented a 2.2% year-on-year increase and 78% up on output just five years ago – the fastest increase in housing supply in more than 80 years of comparative statistics. As I have written here before, it is easy to overlook – indeed many commentators frequently do – these outturns are exceptional numbers in historical terms, with 2017/18 ranking above the 1950s average for net housing supply and the third largest annual figure since 1971. Indeed, during the 1960s, while total production was off the charts, discounting demolitions, average supply was around 224,000, again only just above last year’s achievements.
Before delving deeper into components and regional comparisons, it is worth briefly reflecting that the reporting period for the statistics published by government last month are for the 12 month period to the end of March 2018. As a result, the figures are undoubtedly affected in some way by the extreme cold weather and storms that hit the UK between late February and mid-March this year. It is obviously impossible to estimate how many completions during that time were lost to the Beast from the East and Storm Emma but the number could well be in the thousands as some builders reported losing weeks worth of days on site.
After several years of more reliance on less traditional sources of housing supply such as office to residential conversions, one big positive from last month’s publication was the 6.4% year-on-year increase in new build completions (traditional housebuilding) with a big year-on-year fall in conversions and changes of use (-20%) bringing down the headline annual growth in net supply to just 2.2%.
While the government’s headline housing supply objectives are related to net housing supply, because this is the measure most important for the long-term health of the housing market and for housing affordability, in many respects other indicators are more important for the home building sector. Pure new build construction represents a far bigger and more sustainable activity for builders.
Gross housing supply, before demolitions are factored in, remains the key measure where the conversation relates to industry capacity. On this metric, over the past three years, the industry has built just under 660,000 new homes.
The number of demolitions is at an all-time low, with just 8,000 dwellings erased last year, but this trend is unlikely to continue forever. Just a decade ago, demolitions ran at around 20,000 homes per year, or around 10% of production. It often goes unreported but for the industry to meet the ambitious government target of 300,000 net additions per year, it is reasonable to assume that capacity in the sector is required to build something closer to 325,000 homes per year before netting off demolitions. So, if we return to a “normal” level of replacing old homes, it is fair to say that we are currently producing 100,000 homes fewer than we need to be if the 300,000 aim is to be achieved. This implies that without a step change in productivity, the home building workforce needs to increase roughly by one-third between now and the middle of the next decade. Something which, in the current economic and political climate, might prove rather difficult.
With much of the “low hanging fruit” from the office to residential Permitted Development Rights (PDRs) having already been picked off, we saw the anticipated reduced reliance on changes of use in the overall mix of net housing supply with 29,720 new dwellings being derived through this route in 2017/18, comprising 15% of the net housing supply, down from 19% in 2015/16 and 20% in 2016/17. There were some exceptions to this trend, with several areas still heavily reliant on changes of use for a big chunk of its housing supply. This included Derby, Leicester and Nottingham in the East Midlands where between 30% and 55% of new homes completed last year were in buildings that had a previous purpose. Elsewhere, Slough, Poole and Portsmouth also stand out as hotspots for this activity while West Yorkshire, Cumbria, Hertfordshire, Suffolk and Surrey saw upwards of 1 in 5 new dwellings coming out of PDR schemes.
As the mix moves back to a more traditional reliance on typical housebuilding for boosting housing supply, the policy of the coalition government to liberalise the switch from office to residential can be seen to have succeeded, at least purely in the numbers game. It allowed developers to boost housing supply rapidly, building capacity in the sector and creating new homes without having to wait for the planning system to creak into action.
Some commentary in the days following the publication of the housing supply statistics focused on the falling output in London, where net supply fell from 39,560 in 2016/17 to 31,723 in 2017/18. Evidently a sharp drop and tens of thousands short of the capital’s housing need, but to put this into context the outturn in 2017/18 was the third highest figure this century albeit well down on the previous year which broke records set in the 1930s. Indeed, the average net supply in London between 2000 and 2016 was around 26,000 per year. As ever with London, the constituent boroughs presented a mixed bag of results with Hammersmith & Fulham and Barnet recording their highest figures since the current data series began in 2000 while Southwark was at its lowest for 17 years.
Other areas breaking records for housing supply this century included counties such as Cornwall, Hampshire, Essex, Devon, Gloucestershire, Worcestershire and Oxfordshire. Housing growth in Essex has been particularly impressive, with sustained increases in each of the past four years, putting net supply at roughly double where it was in 2013/14.
In the larger unitary authorities, hotspots included Cheshire East, Cheshire West & Chester, Bath & North East Somerset, Plymouth, Hull and Leicester, all seeing the highest number of local completions on record. Net supply in Hull more than doubled to 1,341 last year compared with the previous year and represents a remarkable change for the city from the negative net supply figures recorded in both 2000/01 and 2001/02. Similarly, in Bath & NE Somerset, last year’s output of 1,245 is around five times higher than levels of supply traditionally seen in the area.
Discounting the big fall in the contribution from London, for much of England the picture continues to be very positive. Analysis by Lichfields shows that, based on these latest statistics, most regions are pretty much meeting their local housing needs (under the proposed Standard Method), with the exceptions being the South East (around 10,000 short), the East of England (also around 10,000 short) and London (a whopping 45,000 short of its near 80,000 dwellings per annum requirement).
As if this festive season for housing statistics was not exciting enough, the net supply statistics were followed just days later by new figures on affordable housing supply. These also provide another indication of not just the huge progress made by the housebuilding industry but also serves to provide a timely reminder to the many critics of the sector and the significant cohort of land value capture reformists, that the present system of taxing land value for public benefit is at the very least not a complete failure. Affordable housing completions rose, year-on-year, by 12.2% in 2017/18, with an increasing reliance on section 106 supported delivery. Last year, just half of new affordable units were funded by s106 either in full or in part. This reflects the medium term trend in affordable housing supply and demonstrates the huge social value being extracted from high levels of private delivery.
It builds on an independent review of developer contributions conducted for government last year which showed that £6 billion in community benefits was derived from the private sector as a result of planning obligations in 2015/16, of which two-thirds was channelled into affordable housing. The report found that £1 billion of the contributions were dedicated towards providing social rented homes, meaning the private sector is now the main funder of what some call “genuinely affordable housing”. This very much chimes with the aforementioned affordable housing statistics from the housing ministry which reported that more than 60% of social rented completions came from s106. Of course, the value – in private subsidy and to the public – of social rented housing is greater per unit than other forms of affordable housing suggesting that the headline numbers in terms of units somewhat undercook the private contribution to the country’s most pressing housing crisis, that of keeping people off the streets and finding families on the lowest incomes a suitable roof over their heads.
With relatively little fanfare and against an increasingly uncertain backdrop, home builders continue to push supply upwards beyond historically significant markers and towards the unprecedented 300,000 number. Yes, this has been supported in no small part by the hugely successful Help to Buy scheme, but that investment from Government is not only transforming the housing market for hundreds of thousands of first-time buyers, it is providing a shot in the arm for the economy and generating tens of thousands of additional affordable homes as a by-product. Going further, faster will require new entrants to the market and new ways of delivering homes. For HBF’s part we continue to look at the contributions that so many more SMEs could be making to supplement the big increases from larger builders in recent years and the obvious ambitions that ministers have for local authorities and housing associations. Another big push is still to come.
Article & Image Source: House Builder