HBF Parliamentary Newsletter - Autumn 2022

Mon 07 November, 2022

Introduction

In this Parliamentary Newsletter, we update you on our work to progress the many ongoing and new challenges affecting the home building industry as well as our members’ work to sustain recent housing supply increases while tackling major business, regulatory and social change.

We hope you find it a useful update on the home building industry’s activities and priorities but if you have any questions or would like to discuss to an issue in more detail, please get in touch.

About HBF

---

HBF report finds that new build buyers save over £2,000 in energy bills

A new report, ‘Watt a Save’, published by HBF has found that buyers of new build properties will save on average of £2,000 in energy bills and reduce carbon emissions by over 2 tonnes per property each year. Collectively, new build home buyers are saving over £500 million and reducing carbon emissions by over 500,000 tonnes a year.

The report, that analyses Government data on the energy efficiency of new build and existing homes, highlights:

• New build properties significantly reduce energy usage, with the average new build using approximately 100 kWh per m2 each year, as compared to older properties which require an average of 259kWh per m2.
• New build properties save an average of just over £2,000 per property each year, with the average annual running costs for a new build totalling £1,500 as compared to an average of £3,570 for older properties. These savings rise to £2,600 a year when looking at new build houses alone, rather than smaller properties such as flats or bungalows.
• 84% of new build homes were rated with an EPC of B or above, while less than 4% of existing dwellings reached the same standard.

Despite Government action to try and keep a lid on energy prices, bills are now significantly higher than just a few months ago. While there is some comfort in the recent intervention to cap typical energy bills at £2,500, inefficient households will continue to pay more than those living in a new build.

On top of these dramatic savings, buyers of new homes are also contributing to the country’s progression towards net zero, with each new build preventing 2.2 tonnes of carbon being emitted each year.

Not only are new homes built to the most up to date regulations, builders are also demonstrating their commitment to go further, using new technologies and methods to ensure efficiency is embedded to the highest standard from the point of construction. The report also explores some of the most ambitious and forward-thinking examples of new homes in the industry. In contrast, owners of existing properties will often find themselves facing disruptive, extensive and costly retrofit works to bring their homes to the same standard.

HBF is urging lenders and the Government to do more to ensure that consumers can benefit from the financial and environmental savings that the most energy efficient homes can offer, by factoring in energy bill savings into mortgage calculations. We will keep members updated on any further developments.

The report can be read in full here.

Homebuilders face a £4.5 billion hike in taxes and red tape

A new report by the Home Builders Federation, ‘Building Homes in a Changing Business Environment’, has identified 12 new taxes, levies and regulations, that, whilst mostly meritorious, cumulatively pose a serious challenge to the industry’s ability to function and deliver new homes.

The bill, which totals an estimated £4.5 billion a year and adds £20,000 on to the cost of building each new home, includes two new industry specific taxes to fund remediation of buildings over 11m built by foreign developers, public bodies or untraceable companies; new regulations that will necessitate changes to heating systems in new homes; electric vehicle charging points for all new homes and a slew of effective taxes imposed unofficially by quango Natural England.

The creeping cumulative burden of new financial regulations and policies, all due to take effect between summer 2022 and spring 2025, will have a critical impact on the industry and its ability to deliver on Government housing delivery aspirations.

At present there is little understanding of the interplay between the various items, the cumulative burden that they represent or the impacts on housing supply or in the delivery of infrastructure and affordable housing. The report highlights how the first consequence of this burden will likely be on the Section 106 and Community Infrastructure Levy contributions that local authorities receive for affordable housing and other important community services, such as education provision. The regions most likely to be affected by this are in Northern England and the Midlands, which threaten to undermine the housing component of the Government’s Levelling Up agenda. While many of the measures fall equally on all regions and types of development, the Biodiversity Net Gain (BNG) requirements which have been broadly supported by the sector will impose costs on development in Yorkshire which are expected to be three times the impact in London.

The industry opposes in concept very few of these measures, but HBF is urging the new Government and ministerial team to take stock of the vast number of additional cost burdens imposed on housing delivery that come from right across Whitehall and take a sensible approach to the introduction of these. While asking for a more considered approach to the implementation of many of these measures, the sector continues to call on the Government to urgently address:

• The free reign afforded to Natural England to ransom housing developments across a third of England because of nutrient pollution caused principally by agricultural practices and the lack of investment by water companies in the networks they operate
• The unfairness of hitting the sector with a second industry-specific tax in a matter of months, both of which are intended to pay for the same remediation of medium- and high-rise buildings built by other actors. The £3bn Building Safety Levy comes in addition to the Building Safety Pledge signed by almost 50 UK developers and which is estimated to be worth more than £2bn and the 4% Corporation Tax surcharge on UK home builders which took effect in April 2022, but which is not paid by foreign developers operating in this country which is also expected to extract up to £3bn from firms

The identified annual costs are as follows:

• Energy conservation: Part L - £750 million
• Accessibility: Part M - £310 million
• Future Homes Standard – £1.9 billion
• Future Buildings Standard - £100 million
• Building Safety Levy - £300 million
• Residential Property Developer Tax - £250 million
• Red diesel rebate removal - £42 million
• Biodiversity Net Gain - £256 million
• Nutrient neutrality - £337.5 million
• Water neutrality - £5 million
• Recreation mitigation - £42 million
• Electric vehicle charging: Part S - £206.2 million

The report can be read here. For any further information, please contact David O’Leary.

Mental health awareness in the home building industry – Drop in reception

In support of HBF’s Mental Health Awareness Campaign, we are pleased to be holding a drop in Parliamentary reception, sponsored by Dean Russell MP, on Wednesday 22 February, 2.30-4.30pm, Dining Room A.

Poor mental health can affect any one of us at any time. In fact, one in four of us will experience a mental health problem each year, regardless of our background. The home building industry is, of course, not immune to these challenges. On the contrary, the statistics for our sector make for sobering reading:

• Two construction workers take their own lives every working day
• 91% of construction workers have felt overwhelmed and 26% of workers have experienced suicidal thoughts
• The risk of a male construction worker dying by suicide is three times above the national average

While significant progress has been made in the industry in recent years, including the training of more than 1,000 Mental Health First Aiders, more still needs to be done. With this in mind, we hope you will be able to join us on 22 February to:

• Gain the knowledge and resources to signpost construction workers in your constituency to appropriate mental health support
• Learn more about the the work developers are doing to support construction workers in the home building industry
• Further break down the stigma around mental health and encourage open discussion

The event will also provide a chance for you to meet some of the sector’s Mental Health First Aiders who are supporting this vital work.

We would be delighted if you could attend the reception. To RSVP or for further information, please contact Emma Ramell.

Help to Buy scheme closes; industry-designed scheme takes centre stage

In October the Help to Buy scheme closed to new homebuyer applicants. 10 years on from its introduction, the scheme has supported close to 400,000 households onto the housing ladder and into a new build home.

Recent data from Homes England also revealed the extent of the benefits being seen by the Exchequer with the average return on investment for the taxpayer of around 10% across the first 100,000 loans that had been fully repaid to the Government by March 2022.

Over the first nine years of the scheme’s operation (1 April 2013 to 31 March 2022):

• More than 360,000 properties were bought with an equity loan.
• Equity loans worth £22.5 billion were used to purchase properties with a combined value of £100 billion.
• First-time Buyers accounted for 302,000 (82%) of total purchases.
• In 2021, the median household income for a first-time buyer household (combined income) using Help to Buy was £53,000.
• 54% of all Help to Buy purchasers to date, almost 200,000 households, have purchased with a deposit of just 5% and this rises to 78% of buyers purchasing with a deposit of up to 10% meaning that almost all purchasers would otherwise have been reliant on accessing high LTV mortgages.
• By 2019/20 housing supply had increased by 95% compared with the trough in 2012/13.
• The 361,000 homes purchased through the scheme will have supported or sustained an average of 40,000 jobs a year and generated a total of £61 billion in economic activity.

In anticipation of the close of Help to Buy, HBF worked with 17 of its members to develop the Deposit Unlock scheme, a privately funded new build mortgage guarantee scheme. Deposit Unlock gives homebuyers access to high loan-to-values with home builders de-risking the loans for mortgage lenders through a mix of a direct financial contribution and an indemnity.

Since its launch, the scheme has expanded to more than 30 participating developers in England, Scotland and Wales and three national mortgage lenders, Nationwide Building Society, Newcastle Building Society and Accord (Yorkshire Building Society).

Lenders currently participating in the Government’s Mortgage Guarantee Scheme are effectively barred from taking part in private initiatives such as Deposit Unlock because of the rules of the Treasury scheme.

Reversing the decline of SME home builders

The importance of SME home builders to tackling the housing crisis and the measures needed to reverse their decline was the focus of HBF’s event programme at both the Labour and Conservative Party Conference this year.

While the home building industry in its entirety has flourished in recent years with more than 1.2 million new homes built in the past five years alone, small and medium sized builders have fared far less favourably.

The diminution of SME developers has been taking place since the early 1990s, with SME developers now responsible for around just 10% of new homes built (down from approximately 40% in the late 1980s). Inevitably, their decline has been exacerbated by the 2008 global financial crisis, and more recently by the impacts of the coronavirus pandemic, cost inflation, and labour and materials shortages. However, there are also several systemic challenges relating to planning, finance and red tape, which, if left unresolved, will prevent SME home builders from ever reaching their full potential. It is these issues on which our fringe panellists focussed.

HBF representatives were delighted to be joined by a range of expert voices on the panel at each event including Katy Jordan, SME Developer and Tom Copley, Deputy Mayor of London for Housing and Residential Development at the Labour Conference, and Rob Boughton, CEO, Thakeham, Housing Minister Lee Rowley and Natalie Elphicke MP at the Conservative Conference. Each provided their individual take on the challenges facing SME builders and the actions that could be taken by Government to resolve the issues.

Some of the matters discussed included:

• How to make the planning process work more efficiently - Delays in the planning process are impacting all developers across the country, regardless of size, but the effects are felt most acutely by SME builders. In fact, our 2022 survey of SME builders, run in conjunction with Close Brothers Property Finance and builders’ merchants Travis Perkins, found 93% of respondents saw delays in securing planning permission or discharging conditions as a major barrier to increasing housing supply. The limited availability of suitable housing sites, and the constant struggle to secure viable planning consent, has a huge tangible impact on SMEs’ ability to grow. Planning processes are beset by delays, and poor resourcing at local authority level creates additional costs and uncertainty.
• Tackling bureaucracy - Bureaucracy in the development process is a source of frustration for most house builders, but, again, while larger firms are adequately resourced and well equipped to negotiate the delays and excessive costs involved, for small developers and, in particular, start-ups, these considerations are critical to the survival, let alone growth, of the business. While resourcing of the specific planning functions within a local authority is a frequent source of frustration, associated services can also make the business environment more challenging. The process of obtaining approval from highway authorities for new roads and the terms and costs involved with authorities adopting new roads on completion can often add months onto development timescales. In an increasing number of cases, builders report that highway authorities are reluctant to adopt new roads at all.
• Terms of business finance - While the availability of finance has not been a tier one concern in recent years, the terms on which that finance is available means that recycling equity on developments takes considerably longer than in the past, hampering firms with big growth ambitions. Lenders have drastically changed their attitudes to the sector since the global financial crisis, and their risk appetite also correlates to the risk and uncertainty inherent in the planning process on which all developers rely – which, inevitably, tempers the approach of banks and specialist funders that have diminished visibility as to when they will see their capital repaid.

HBF has outlined a number of recommendations to tackle these issues, including:

• Requesting Government ensure local planning authorities are adequately resourced and tackle the inefficiency resulting from a lack of prioritisation and resources. They should consider possible options for depoliticising planning decisions at a local level too.
• The Government also needs to ensure forthcoming government policy, including the revised National Planning Policy Framework (NPPF), includes an emphasis on bringing smaller sites forward through the local planning process, particularly if the requirement for a five-year land supply – where councils with up-to-date local plans will no longer need to demonstrate a five-year supply of housing sites – is to be removed, as is currently proposed in the LURB.
• HBF would encourage the introduction of key performance indicators (KPIs) or similar for highways authorities to highlight the underperformance of many (and the responsible approach taken by others). Developers would also welcome a single set of standards for highways design. These are often highly technical matters and there is no reason why there should be such a significant local variation.
• The introduction of a government guarantee for development finance lenders of up to 20 per cent of development costs. We consider that by underpinning private lending with a government-backed guarantee, this could enable home builders to secure more favourable terms and higher effective loan-to-cost ratios.

In conjunction with Close Brothers Property Finance and Travis Perkins we will shortly publish the third annual survey of SME home builders which will explore the challenges they face and their investment appetite for the coming period.

If you would like to discuss any of these issues in more detail, please contact Strategy and External Affairs Director, David O'Leary.

New homeowners to benefit from increased protections

At the start of October, the independent New Homes Ombudsman Service (NHOS) and new Code of Practice for builders officially launched, giving customers buying new build homes increased protections in the event of any issues they have with their new home or disputes with their developer.

The new code will put significantly more requirements on builders in terms of how they treat their customers and deal with any complaints, whilst the NHOS will provide redress for customers in the event of a dispute. The New Homes Quality Board (NHQB) will oversee the new Code that puts consumers at the heart of the new build process.

Over 100 developers are now registered and are working with the NHQB to ready themselves to follow the first builders to go live at the earliest opportunity. The scheme will initially cover England, Wales and Scotland, and ultimately the whole of the UK and those that are signed up to the scheme already will display the NHQB and Ombudsman branding. The Government has committed to oversee the introduction of a statutory Ombudsman, and through the Building Safety Act, now has the powers to do so.

The new arrangements will deliver a step change in the approach by industry and lead to even higher quality new homes and better customer service. Whilst challenging, the new arrangements will provide all parties, in particular our customers with even more confidence in buying a new build home.

The NHQB also held a reception in Westminster at the start of November, attended by the Housing Minister and a range of industry representatives.

HBF initiated the early work that led to the formation of the independent New Homes Quality Board and continues to be supportive of its work. For any further information, please contact Steve Turner.