End dominance of big homebuilding firms to fix broken market, MPs urge

The dominance of large volume homebuilders must be reduced to help fix the broken housing market and build the homes the country so desperately needs, the Communities and Local Government Committee concludes in a report published today. The Government should support small and medium builders and ensure local authorities have the tools they need to make an effective contribution to solving the housing crisis, the Committee adds.

The report notes that the eight largest firms build more than half of all new homes and calls for a more competitive market, with a large number of companies of different sizes. The Committee recommends improving access to land and finance for smaller builders and says Government should reduce the risk for builders by preparing sites for development by providing infrastructure and planning permissions.

The Committee also calls for increased building by local authorities and housing associations, which will help protect the sector against economic downturns but has almost ceased. The MPs say borrowing caps on councils’ Housing Revenue Accounts are limiting their ability to build and should be raised or, in the areas where housing affordability is at its worst, removed.

The need for more rental homes, greater assistance for Modern Methods of Construction and improvements in further education to address the growing skills gap, described by the Committee as the biggest challenge facing the sector, are also highlighted in the report.

Clive Betts MP, Chair of the Communities and Local Government Committee, said: “The housing market is broken, we are simply not building enough homes. Smaller builders are in decline and the sector is over reliant on an alarmingly small number of high volume developers, driven by commercial self-interest and with little incentive to build any quicker. If we are to build the homes that the country so desperately needs, for sale and for rent, then this dominance must end.

“A successful housing market is a competitive one and Government should support smaller developers if it wants to increase the housing stock. This includes earmarking land, improving access to finance and reducing risk by proactively preparing sites for development. Local authorities have a key role to play but have not been given the tools they to make an effective contribution to solving this crisis.

“Innovation must also be encouraged and we need to finally get to grips with the major challenge of ensuring that the industry has a much-needed supply of skilled workers, without whom this country’s housing crisis cannot be addressed. The Government’s promises are encouraging, but their implementation must be closely scrutinised.”

Small and medium builders

The Committee found that smaller builders struggle to access land for development as local plans predominately earmark large sites only suitable for volume builders. The Committee welcomes plans in the Housing White Paper to encourage councils to identify smaller sites and sub-divide larger ones but says Ministers must make clear what powers will be available to ensure this happens.

The report identifies difficulties in accessing finance for small and medium builders, which are seen a higher risk. The Government should look to learn lessons from the German model of support for SME companies, which uses a state-owned development bank to protect lenders from liability, while providing low rates to customers.

Methods of Modern Construction and custom and self-build

The Committee urges the Government to play a more active role in supporting the growth of Modern Methods of Construction. This includes sponsoring a single, recognised quality assurance mark to give lenders, builders and consumers’ confidence. The Committee also champions custom and self-build homes and says an approach seen in the Netherlands, where people self-commission homes on publicly-owned land, should be considered in the UK.

Skills gap

The report points to the growing skills crisis and calls for concrete proposals from Government, particularly with regards to improving further education routes into the construction industry.  The importance of workers from the European Union is also raised by the Committee, which warns that following the Brexit vote, large numbers of the already-stretched workforce face an uncertain future.

Green Belt

The Committee is concerned that the Housing White Paper effectively weakens protections for the green belts in the National Planning Policy Framework as the ‘exceptional circumstances’ could now include any local authority not building enough homes. The Government should publish clear guidelines.

Development land market

The development land market is so competitive that developers pay inflated prices and seek to recover costs by increasing density, reducing affordable housing and building slowly to keep demand high. The Committee’s successor should examine the case for public intervention.

ENDS

NOTES:

There were around 125,000 net additional homes in England in 2012-13, Government figures show. This rose to nearly 190,000 by 2015-16. The Government has targeted 1million new homes by 2020, the equivalent of 200,000 a year (Q353/354).

Housing charity Shelter say between 230,000 and 280,000 new homes are needed annually. A report by the House of Lords Economic Affairs Committeeconcluded that at least “300,000 new homes are needed annually for the foreseeable future. 

In 1969-70, local authorities built 135,700 homes but this figure decline steadily until 1999-2000 when just 60 homes were completed. In 2015-16, the total was only 1,890, according to Government figures.

The homebuilding sector is dominated by the volume developers, with a quarter of all new homes in 2015 being built by the three largest companies (Persimmon, Taylor-Wimpey and Barratt) and the eight largest firms accounting for more than half of all new homes.

Market share for small builders (1-100 units per year) has fallen from 28% in 2008 to 12% in 2015. The market share for medium builders (101-2,000 units a year) has fallen from 40% to 29%, while the share for volume builders (2,000 plus units a year) has risen from 31% to 59%, Government figures show.