The central theme of today’s Summit is housing growth – not just in the 29 designated New Growth Points like Reading – but also the potential for housing growth across the country to meet demand and ease affordability.
Of course, the stakes are now even higher since the Prime Minister announced ambitious new targets 12 days ago. Increasing the annual homes target to 240,000 presents both opportunities and challenges. So my theme for today is how the housing industry, with the help of Government – nationally and locally - can embrace the opportunities and overcome the challenges.
But first, let me start by thanking CLG for organising this Summit. In particular, I would like to thank Yvette Cooper for the contribution she has personally made to push housing high up the policy agenda of Gordon Brown’s Government.
We are delighted that our call for housing to be recognised with a seat at the Cabinet table has been heard – and that she is occupying that seat.
This afternoon the Green Paper will be published and we will have more detail on the Government’s plans. The immediate question is whether the home building industry agrees with the ambitious growth targets?
Yes we do.
Many of the HBF’s larger members have already committed publicly to help deliver the new homes required by 2020. We have the appetite. We have the capacity. We have the flexibility to adapt to new market demands.
But the challenge is not simply the scale of the growth. Yes, we have to build more homes faster than we currently do. But we also have to build them to meet ever higher regulatory standards, for example to zero carbon by 2016.
We have two main challenges. A “double whammy”. The only way to avoid a knockout blow is to deliver the land.
Quite simply. More homes means more land. More zero carbon homes means more land.
Before I explain further let me dispel one myth repeatedly levelled at the industry. That of landbanking.
To read the commentators in recent months you might be forgiven in thinking that Britain’s home builders are engaged in a landbanking conspiracy. That we hold onto land to gain from escalating land values instead of bringing it forward for much-needed development.
Nothing could be further from the truth. Our own data – collected for the Calcutt Review– demonstrates that on 97% of sites owned by our members with an implementable planning permission, firms are on site building homes within three months of gaining the permission. Permission that they have waited often far too long for - on average for 15 and a half months.
It makes no sense for builders to hold onto land when they gain planning permission. Shareholders and the city demand that they earn a return on their capital investment, including capital invested in the land. Any gains from rising land values would be insignificant compared to the extended cost of servicing the capital.
And as an industry we must have sufficient land in the pipeline to reassure investors that we have a solid future business – 2.4 years supply is our members’ average. That is not hoarding land, it just prudent business.
And why don’t house builders simply speed up production, given the level of unmet demand? Because of the shortage of land with planning permission. If I double this year’s production and slash selling prices to sell these additional units, my profits will be slashed and I will suffer a drastic drop in next year’s output because I will not be able to replace the land I have used up so quickly. Hardly good business sense.
Every successful business or service plans for the medium to long-term. Homebuilders are no different. Today’s so called landbanks are tomorrow’s housing developments. Today’s profits are tomorrow’s successful housing developers.
Without this development pipeline Britain would continue to face a deeper crisis of under-supply even if sufficient planning consents became available. And without a profitable development industry, we would have no housing output, affordable or otherwise.
So there is only one sustainable, long-term solution to our housing crisis. A steady and sustained increase in the amount of land coming through the planning system ready to build on. There are no new short-term fixes.
Of course, in recent years there has been one very successful short-term fix to drive up the number of new homes. To build at higher density.
Since 2001, when housing completions in Great Britain fell to their lowest peacetime level since 1924, home builders have increased their output by a fifth. Further proof that the industry is more than capable of adapting to Government policy change.
But most of this growth has been because densities per hectare have risen from 25 to 40. We have played our part to meet housing demand with less land.
And this has brought benefits to the UK that is a credit to this Government policy. Innovative developments at high density are contributing to an urban renaissance that has seen our cities and larger towns transformed through housing–led regeneration. This is bringing people back into our cities to live and work, creating value in places long-abandoned.
And it is increasing the proportion of new homes built on brownfield land from 53% in 1997 to 74% in 2005 – actually exceeding Government Targets.
But building at higher density can only be a short-term fix. And one that looks as if it is coming to an end.
The HBF’s analysis is that densities have reached a plateau. They are likely to go down as the industry responds to resurgent demand for new homes suitable for raising a family.
So the scale of the challenge to build 240,000 new homes every year will be even harder without more land. Let’s not forget that’s a 50% rise on output only six year ago – with the fix of higher density having run its course.
The only solution will be to release more land.
I view the new targets as a clarion call to homebuilders and suppliers, local planning authorities, and regional decision-makers that urgent action is required to find the additional land. Brownfield or greenfield – we need the land for these new homes.
Finding the land is the only the start. We must also speed up the planning process.
We don’t need any more reviews or inquiries or studies or distractions to diagnose the problem. Kate Barker very ably set out the scale of the challenge over three years ago and came up with clear prescriptions for future housing growth.
PPS3 is one such prescription. It’s only been operational for some four months. It needs to do its work to help bring forward the land for homes that people want in the right place at the right time.
So what we desperately need now is for those of us in this room and beyond, who are tasked with framing policy and – crucially – delivering the , new homes we so desperately need – to act with resolution to begin the process of taking the medicine.
And to overuse the medical metaphor – we need to stay the course of treatment. We cannot slow down the pace of improvements in the planning system at the first glimmer of a reduction in the length of time that applications take to be processed.
I am concerned that the same political momentum behind fast-tracking large-scale infrastructure projects will not be put behind the national imperative to build sufficient homes for this and future generations.
Gordon Brown and his Government must continue to deliver the very strong leadership that will be required to turn the ambitious targets into reality. Releasing more land is the priority.
But remember there is a second fist that makes up the “double whammy”. That of the creeping cost of regulation. I say this not to deliver the standard ‘moan and groan’ that is expected from a business leader.
This is a very serious point that we all must grasp. Delivery of more homes could be slower, not faster, if the burden of regulation becomes too much.
Home builders can and do want to play their part and pay their share of costs. But when you add cumulatively the costs of:
s106;
and affordable housing obligations;
and roof tax or planning gain supplement;
and building to zero carbon…
… then the danger is that accelerated growth in housing will be hindered not helped.
At its extreme, many sites potentially earmarked for housing growth will actually become unviable. Consider a former factory in a town. Perhaps an ideal brownfield site where other local residents would be content to see new homes.
But the cumulative cost of regulation to develop that site could result in a negative value. The developer will not be able to make the scheme viable and the landowner is likely to look elsewhere to realise the value of the site. The result – no new homes.
Please don’t get me wrong. We take our responsibility to meet higher regulations – as consumers expect – very seriously.
Most notably we have embraced the climate change imperative. Within weeks of the Government zero-carbon homes announcement, the HBF convened a Summit, bringing together everyone who has a stake in the debate.
As a direct result, the HBF was asked by the Government to convene a joint Task Force - co-chaired by Yvette Cooper and me.
Critically we have proposed a staged process over the next nine years to ensure that the supply chain can keep up with the changes needed to build zero carbon homes that meet consumer expectations.
We all need to understand the gravity of the threat posed if local authorities seek to set their own performance and energy standards in isolation from the priority of building more homes.
I have been explicit and firm from the very beginning on the need for coherent, national targets set against a realistic ten-tear timeframe and implemented through Building Regulations.
I raised this directly with CLG, and we continue to press home the critical need for uniformity if the Government is to achieve higher standards in line with increased output, rather than at its expense.
If every new home is to be an eco-home by 2016 – within the reach of the majority of consumers and not the preserve of the few who can afford them – then we need to get the long term framework right and have smart targets that are achievable.
Local authority political posturing for the green ground with ever-more unaffordable and potentially unachievable targets, and taking no responsibility for how these targets are to be achieved, will serve no-one’s interests.
I have no wish to remove democratic principles, whether it’s for environment al standards or where housing should be located. Everyone must have their say.
But we must remain focused on the national imperative.
That is to build more homes to meet demand and expectation. Homes that will be affordable for your children and my children.
To increase building by 50% is an opportunity, but also a challenge. As an industry we need the land. But the land must come quicker and with more certainty that we can get on site quickly. Eighteen month lead time and a third of applications going to appeal is unacceptable.
I am confident that we can stand up to the double whammy. The housing industry is willing and able to adapt to deliver the volume of new homes to the highest standards over the ten year plus timeframe.
Quite simply – give us the land and we will deliver.