A Developer’s Perspective
It’s all a matter of perspective, isn’t it?
Well, what is the Developer’s viewpoint? Denise Hyland, interviews a Development Director of one of the biggest house builders in the UK to find out what they feel about the Housing Market.
What are your current thoughts about the state of the housing market?
Well, its been increasingly challenging over the last 5-10 years. As a Group, we have spoken with the housing minister, the Treasury, the deputy mayor for housing in London to see what can be done to solve the crisis that it’s now nationally recognised to be one. It’s also a crisis for the provision of Affordable Housing. It’s been adversely impacted by global events but ‘also national and regional policy. After flagging this for many years, the ‘penny has now dropped and the sector has woken up that we’ve almost ground to a halt for housing delivery, particularly in Central London. If we, as one of the major developers are finding it tough then you can imagine how increasingly difficult it is for the SMEs, the smaller house builders.
The key areas of challenge are build cost inflation for both materials and labour, the absence of that labour, after Brexit, and the missing skill sets needed to build effectively on site. The regulatory regime is changing at such a pace that it’s hard to keep up with, and that includes new building regulations. We have increased policy and design requirements, not necessarily nationally but regionally within the London Plan which have become a burden to the abilities to design viably. We have increased planning complexity and timescales, so the subject matter has become a more complex, specialised and lengthy process. Then there’s been the introduction of the Building Safety Act 2022 which is the biggest challenge we are all facing and delivering uncertainty at the moment. It introduces new stages to the building process; Gateways 1, 2 & 3 (Planning, Building Regs and Maintenance for Occupation) and that prolongs the lead-in time for new development. Then there’s been increased interest rates which have affected both developers and home buyers. In the developer world there’s also been an increased tax burden. National Insurance, Corporation Tax, CIL and S106 and the previous Government’s requirement for the big six developers to help fund the delivery of re-cladding across the country, notwithstanding that we have sorted out our own cladding issues. This “war chest” amounts to multi-millions.
To achieve this Government’s mission to build 1.5 m homes, we have to look at some of the factors we’ve just listed. The introduction of the dual staircase for residential buildings came in through update of Part B of the building regulations, and such was the uncertainty for most developers that it effectively delayed development by a year. You immediately get a prolonged development programme because you cannot commit money until you have total clarity. This was true for the Registered Providers and the G15 too. The number of staircases was clarified last year and then in December 2024 the fire engineering and number of lifts were clarified. We are wrestling with 3 documents; the London Plan with the need for evacuation there, Building Regulations and British Standards - we have to navigate all these with certainty. This has all added 6 months onto our programme to gather all the information, cross-check it and submit it for approval. The Building Safety Regulator is supposed to turn round approvals in 12 weeks but is taking a minimum of 20 weeks at the moment so that impacts both time and cost. We haven’t been through these processes yet to the final Gateway so we haven’t captured the learning yet. The intention is all good but the execution adds time and cost and all the challenges add up to schemes being economically unviable. Developers are naturally saying that they cannot make it stack up financially. Land is still at a premium value and unless something unwinds, you won’t see land being transacted. So, we won’t even get past GO.
There is an acute need for Affordable Housing, with the requirement for social rent, but the demand for that on top of the other challenges makes the hill to climb even steeper. It’s a sad reflection of where we are at the moment but it’s the reality. It’s not the same in mainland Europe or the USA; I think they have different regulatory regimes - all very safe but the tax burdens are easier. CIL was supposed to have overtaken S106 but it hasn’t. In London there is Mayoral CIL and Council CIL. We do most of our work on Brownfield and now starting to look at Greybelt and touching on Greenbelt land. It’s only right to look at Brownfield first for regeneration but it’s more complex and costly.
What can be done to fix the housing market?
It’s around policy asks. We have a clear priority to solve housing need, particularly in London. This can be done through private and public partnership and collaboration. It’s about owning the relationships and the responsibility, unlocking positions and seeing the opportunities. We are seeing a clearer national policy framework and beginning to see it cascade down to local government policy and that’s probably because in London mostly, you have the same political party in charge nationally and locally, with the absence of political shenanigans. We feel that design guidance, particularly in the London Plan, needs to be revised and lifted, not the policies that require higher safety design standards which is an absolute given, but the dual aspecting and more nuanced aspects of design, which effectively doesn’t utilise a site most efficiently. It stops us getting the density that’s needed. The national planning policy framework (NPPF) is showing signs that density is being supported. We need to see this in London and a relaxation of some of the policies in the London Plan, which has become less of a strategic plan and too specific. It isn’t a ‘one size fits all’. Inner and Outer London Boroughs are very different. Outer London Boroughs values don’t support the costs so a different approach is needed.
Housing Associations need to be refinanced by central Government for them to be able to operate within the market. At the moment they have the same challenges as us in acquiring land and developing. All their efforts are being focused on maintaining their existing stock, so their delivery has stalled. We have fewer and fewer interested in our product. They are looking at longer term grants from Government. London’s thresholds for Affordable Housing are tough to meet and so we need review mechanisms applied to the viability because it’s better to build something than nothing.
A pragmatic approach to planning administration is needed because so much of it now has become specialist it has to be outsourced. More money is needed for local councils, so that planners can receive specialist training and feel empowered in their on-balance decision-making and they absolutely should be pro-development.
How can councils help developers?
By looking at council assets and land and seeking to collaborate in private & public investment partnerships. We should be looking at portfolios of land, so that sites are looked at in the round. I’m not talking ‘poor doors’ here I’m merely saying you could get ‘more bangs for your buck’ for Affordable Housing if you look at the values of the land. It has to be about mixed and balanced communities. Councils can progress planning applications more quickly to help us deliver certainty of time but the lack of resources in planning departments mean we don’t know when it will come to committee. With the Government saying if your planning application is policy compliant you don’t have to go to committee is a helpful step forward.
Some councillors need to be more informed on planning committee and understand the subject matter. We have to maintain credibility in the system and produce a margin because we need to keep our investors wanting to keep investing! Councils can help by not attaching too many conditions as it increases the burden. Let’s deal with the S106 agreement after granting approval - there seems to be this gap when energy runs out causing a delay. Being honest with one another is most helpful.
How can developers help councils?
We try to be as open and honest as we can be in the spirit of partnership. We have some very good examples of where we have worked in partnership together. We have aided councils with place-making, culture and some of their big regeneration and transport bids. We are looking at our sites and particular buildings for the Build to Rent market, with a Discount Rent Product. We will build some 4,500 homes for rent, which whilst it won’t solve the housing crisis, should at least help ease the current situation.
