There is no doubt that Help to Buy has provided a fillip for the industry, but developers still have their eyes on the wider economic picture for issues that may affect their business in the years to come, according to the latest Knight Frank House Building Report.
The real estate firm’s industry wide survey found that rising construction costs have emerged as one of the biggest challenges facing the sector. During the downturn, demand for building materials and skilled labour slumped, and as a result capacity is now being stretched and prices are being forced upwards. In some cases developers are having to import materials from overseas. The transport costs for these materials are notable, and can override any cost savings.
Official data shows that material costs for house building were 16% higher at the end of last year compared to early 2008, while labour and plant machinery costs were 12% higher. These expenses are expected to continue rising. Some 70% of respondents expect construction costs to rise between 5% and 10% this year.
More than 90% of respondents said rising costs would have an impact with 34% saying this impact would be sizeable.
The report says that getting the UK up to capacity in terms of material production will take time, and may weigh on supply.
While the new planning rules are seen as positive by some of respondents, with more than a half saying that it has allowed an increase in the size of schemes achieving planning, it is still throwing up some challenges, not least the localism problem which leads to a NIMBY reaction to developments in some communities.
In fact, local opposition to development is seen as one of the biggest challenges to the sector in the coming years, with 82% of respondents saying it will have a moderate or sizeable impact on the market.
The onerous nature of the planning system was also laid bare, with 70% of respondents saying they had seen a rise in the number of planning applications granted on appeal over the last year.
Other interventions in the development market are striking varying notes with house builders. The New Homes Bonus continues to underwhelm, with nearly 70% saying it has had no impact on development volumes since its introduction in 2011. However this is an improvement from when we last canvassed opinion in 2012 when 81% said it had no impact.
The presumption in favour of development, the extension of the Equity Loan and the improving economy provide a solid foundation for a continued rise in housing supply, but consistency of housing policy is key as is the improvement of access to public sector land.
The report also says that housing starts are expected to rise over the next year, with more than half of respondents expecting an increase of more than 10%, and more than a quarter expecting an uplift of more than 25%. This is backed up by recent official data which shows that housing starts rose by a third in the first quarter of the year on an annual basis, hitting a 23 year high.
Looking further forward, more than seven in 10 respondents expect the number of housing starts by their business to rise over the next 12 months and nearly half of respondents expect an uplift in housing completions of up to 25%.
While 12 or 18 months ago the housing market story was all about London, the broader recovery is reflected in the fact that there is an expectation of a country wide uplift in activity over the next 12 months, with the survey showing house builders and developers active in Wales, Scotland and the North East expecting some of the biggest rises, albeit from a low base.
