The announced formation of a National Housing Bank marked the latest in a pacey series of positive steps to boost housebuilding in England. It comes on the back of radical changes to ease the planning system with the new National Planning Policy Framework and follows hard on the heels of the Spending Review announcements on funding for affordable housing.
Together, these three initiatives put in place some key building blocks that should drive a return to growth in the housebuilding sector after the challenges of recent years.
The National Housing Bank should help to plug the funding gap that currently leaves many good schemes stalled. Development is a risky business and a lack of certainty over returns alongside recent cost inflation and interest rate rises can make finance expensive, if indeed it can be found at all. This is particularly the case for large, complex regeneration and mixed-use schemes that dominate the pipeline in larger cities like London and Manchester.
No surprise then that these cities are picked out for a special mention in the Government press release.
Some of the funding may be devolved to the Greater London Authority and other Mayoral Strategic Authorities. The opportunity for local areas could then be to set their priorities through the proposed Spatial Development Strategies that come alongside local government reorganisation and then back those up with funding to unlock development. This could be a game-changer in driving regeneration and something we called for in our recent work with Homes for the North.
Delivering more homes
But this is welcome news outside the big cities too. Government enthusiasm for large sites, including urban extensions and new settlements, needed to be backed up with a funding commitment, particularly support for infrastructure provision, as we identified in large sites research.
Big sites tie up large amounts of capital for long periods of time, and there are only a small number of players bringing forward sites on this scale. More sites will require these organisations to grow and new entrants to come in, and both will be looking for funds.
Increased support for SME housebuilders should help to drive greater diversity in the housebuilding sector. Delivering more homes will require greater diversity of product, location and approach, and should be an opportunity to turn small builders into medium ones and encourage entrepreneurship. The opportunity presented by reshaping the housebuilding market is something we have explored previously.
One of the many questions arising from the Spending Review announcement of a new £39bn 10-year Affordable Homes Programme (AHP) was what the grant rates would be. Will the grant per home cover the whole cost of the subsidy required to offer homes for rent at a discount to market levels? Or would there continue to be a need for cross-subsidy from registered providers’ existing businesses, which are heavily financially constrained?
The £2.5bn to be deployed by the new Bank in low-cost loans for affordable housing may be intended to plug that gap, topping up the grant in the short term. That would accelerate the effect of the new AHP on registered providers’ appetite for development.
Adam Mirley, director and head of the development team in Manchester at Savills, says: “This could be a massive boost to the viability challenges we see in Manchester and in towns across the North West. Government backing could help to plug the funding gaps that are generated, for example, by the need to stabilise new homes built for rent. It could unlock development in many currently unviable locations, providing much needed new homes.”
Sophie Rosier, director and head of London mixed use development at Savills, adds: “Development in London has been hit by a perfect storm of challenges over recent years and the lack of funding to get started on sites is one of them. Many sites in London are of such a huge scale that very few developers and funders have the capacity and appetite to fund them. The City Hall Development Investment Fund should start to ease this, unlocking some of the many stalled sites across the city.”
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