March 2008
Long Term Prospects for the UK New Housing Market
Non-Technical Report Prepared for Construction Products Association by Wood Holmes Group
Index
Contents 1
Introduction.................................................................................................................................... 3
2
Headline Findings.......................................................................................................................... 7
3
Approach......................................................................................................................................... 8
4
UK New Housing Scenarios....................................................................................................... 12
5
The Evidence Base........................................................................................................................ 19
6
Conclusions and Recommendations......................................................................................... 22
Introduction
1. Introduction In recent years UK Housing has returned to the very top of the political agenda spearheaded by a series of reports including the influential ‘Barker Review of Housing Supply’ in March 2004, the ‘Callcutt Review of Housebuilding Delivery’ in November 2007 and the government’s ‘Homes for the Future’ Green Paper of July 2007. These all set out a series of targets and housing reform strategies that continue to develop in 2008. Such political action, paired with the extensive response to it by a host of stakeholder groups, creates a complex system of interacting social, economic, technological, regulatory, and environmental issues in the UK housing and housebuilding arena. Faced by this complexity, it is perhaps understandable that the future of Housing in the UK is shrouded by a degree of unpredictability in key trends, typified by the variability of house price forecasts over 2007/8 and the apparent shock of the ‘credit crunch’ felt in some quarters of the industry. Such uncertainty translates to considerable risk for key players engaged in the housing and housebuilding arena across the relevant materials, construction, and retail industries. This perception of risk is born out in the ongoing conflicting commentary that pursues clarity on the future of; price, volume, regional location, annual quantities, architectural forms, social vs. private building, use of existing stock, urban-rural shares, material makeup, etc. Under such conditions the need for, and potential of strategic leadership informed by a robust system of foresight planning is clear. 1.1 Background House prices, affordability of houses, where new houses should be built, the demolition of obsolete stock, the regeneration of our city centres as residential locations, climate change and the environmental impact of housing are all factors that interact with one another to create the UK housing market. As an initial effort to resolve this picture a number of key trends and indicators can be considered: The historic pattern of annual housebuilding completions presented below offers a valuable instrument with which to address the potential future of housing in the UK beyond the 213,700 new units built in 2005:
(Source – ONS 2007)
Introduction
The number of important observations are apparent, to summarise: • Since the early 1980s a degree of stability in housebuilding activity has emerged • Historically step-changes in housebuilding behaviour have strongly correlated with post-war rebuilding, powerful social housebuilding agendas, and changes in the political complexion of government. Factors behind this apparent rigidity in the UK house building market and measures to address it formed the basis of the Barker Review which served to reignite the planning reform agenda for the new term and bring the issue of land-supply to the fore. Current housebuilding activity must further be considered in terms of the builders themselves; in 2005 188,900 houses were built by private enterprise, 24,400 by registered social landlords, and 300 were built by Local Authorities. The dominance of private sector as the main contributor to the housing stock directs attention to the consideration of the issue as an economic supply-demand proposition. In this manner population and household income growth, together with historically low interest rates, have underpinned strong growth in housing demand over the last 6 years. The upsurge in prices over the past few years has been accompanied by a relatively modest pick-up in new housing volumes. The increase in demand has potentially fuelled house price inflation while the new housing supply has been relatively inelastic - a factor arguably associated with sluggish planning systems and the capacity of the ‘craft-based’ housebuilder. The sharp rise in property prices relative to incomes and an increase in the cost of moving home (partly due to the introduction of higher stamp duty rates) appear to have limited the rise in the number of property transactions being undertaken during recent market upswings. Under such conditions do we interpret the apparent stability as some form of market ‘paralysis’? Whatever the underlying reasoning, the genesis of the affordability agenda is subsequently clear. However, UK housing must be considered in more depth than volume alone. Private housing construction is currently experiencing structural change. Planning regulations have led to a dramatic shift in the type of new homes being built, with flats and apartments now accounting for nearly half of all new private sector homes compared to just 16% in 1997.
(Source NHBC 2007)
Introduction
Probing these figures it is apparent that the surge of urban two-bedroomed flats that may be traced to the ‘city liveability’ agenda of the early 2000s has masked a downturn in those house models which correlate most closely with housebuyer aspiration. In addition the efficiency with which the UK industry approached rapid flat-building can be related to the downward trend in the m3 volume of new houses; the UK building the smallest new houses in Europe. Furthermore, increased concerns with the recent phenomena of empty flats (buy-toleave) can be identified as a key factor in the amplification of the ‘sustainable communities’ agenda that draws the social component of UK housing into the strategic planning of housing stock composition. Such trends are felt strongly in the planning system that exhibits an ever greater use of Section 106 agreements to develop some control over the configuration of new estates. Within the housebuilding industry the conflagration of such trends can be considered to be driving change focused on the methods and material used in line with the modernising agenda instigated by the Egan Report of 1998 ‘Rethinking Construction’. Supported by building regulations and the march of technology, the subsequent ‘modern methods of construction’ agenda appears to anticipate (and drive) disruptive innovation in UK housebuilding practice, signalling the growth of ‘Offsite’ and its implied reformation of the supply chain. Occupying a prime position in this agenda is the steep innovation curve signalled by the Code for Sustainable Homes and the pursuit of the zero carbon house by 2016. Further to consideration of housing technology is the status of the ‘self builder’ as an increasingly mainstream player and technological pioneer who is able to access the land resource, materials, and skills outside the traditional housebuilding model. Such activity enforces the aforementioned social component as consumer demand is redefined in the housing market through media elements such as channel Four’s ‘Grand Designs’ programme amongst others. Finally, the role of land supply and location, in terms of geography and the balance of Greenfield vs. Brownfield land, as a fundamental determinant of build methods, consumer demand, affordability, and thus the status of the UK Housing market cannot be underestimated. As conflict surrounds the interpretation of motives for builders to ‘land bank’ the historic business model of the housebuilder and the potential for other players in the materials industry to access land and build are increasingly points of debate. 1.2 This Study This research, performed in mid to late 2007, aimed to assess and quantify the impact of these and other factors upon private housing construction and appraise the implications for key industries – with the emphasis on the building materials sector. At the heart of the study is the application of a robust foresight methodology that reaches beyond the restrictions of oversimplified econometrics; effectively considering a holistic vision in which trends and drivers are presented in a manner that supports detailed strategic thought.
Introduction
The overall objectives of this project were: • An appraisal of recent workload trends within the private housing sector and potential related construction product demand • An analysis of the key drivers behind sector change • Identification of future drivers of the private new housing sector over the next ten years • Forecasts for trends within the private housing sector over the next ten years and the implications for related construction product demand
Headline Findings
2. Headline Findings The UK new housing market is a complex and evolving state. In response, this study has sought to integrate trends and drivers across a very broad scope. Overall, we would say that the weight of evidence has to point to little overall change in the new building market over the next ten years - at least in terms of completions and volumes. If anything, in the short term at least, we expect to see a decline in new completions as a result of the global credit crunch and the impact upon the major housebuilders. In terms of the nature and characteristics of the houses being produced (and hence the products inputting into the buildings) we see the potential for some significant change to occur. Any change in the UK new housing market appears to be driven primarily by the following key issues; • The planning reform agenda – presented by government as a mechanism to speed the delivery of housing, but remains a focus of criticism by the housebuilding industry and others well after the 2004 overhaul of the regional planning system. • The post-Egan MMC1 agenda – support found across government and industry for the adoption of new methods and materials - a key question must concern the speed and nature of the results. •
The sustainability agenda – most evident in the powerful building regulations, a ubiquitous feature of this study, presenting clear implications for the future nature of building materials well within the 2017 horizon of this project, with the proposal of new homes to be zero carbon by 2016. The climate change agenda, which many thought may be a passing fad, will continue to be a (if not the) key driver in the market.
•
Consumer power – Taking the power of the consumer alone, we could speculate that the market orientation of housebuilding paired with initiatives such as ‘sustainable communities’ place trends in consumer demand at the forefront of future housebuilding. Whilst the UK consumer remains the great unknown in offsite construction we already see a large proportion of materials being made offsite. We don’t see any compelling evidence that self-build will remain anything other than a niche activity and a societal level shift toward European levels of self-build are unlikely, not least due to the planning laws and land availability within the UK.
1 Modern Methods of Construction
Approach
3. Approach This study is made distinct in the current field by the extent of its research and the use of a range of foresight techniques. Within the parameters of time and budget, we have attempted to examine the UK new housing market from multiple perspectives over a 10 year time horizon running up to 2017. The study has employed an array of quantitative and qualitative foresight techniques, centred on scenario planning, to identify and assess the potential future trajectory of key drivers that will determine the UK New Housing Market to 2017. The approach is a direct response to the reductionism and flaws exhibited by a prevalent econometric culture in the production of insight which are not applicable to long-term strategy and tackles the inherent uncertainty of forecasting for complex systems over this period of time. In this manner the scenario planning technique offers the opportunity to integrate the political, economic, technological, environmental, and social dimensions in the service of understanding risks and opportunities for the reader. The result is a valuable insights, into the nature of ‘change’ and ‘uncertainty’ in the progression of trends established in the history of UK housing. 3.1 The Method In terms of specific research and analysis activities the study presents a series of mutually complementary features: 3.1.1 Literature Review An exhaustive and comprehensive analysis of key documents, policies, and strategies took the PESTEL framework as its structure to examine the historic trends and drivers responsible for the current state of the UK new housing market. This resource was subsequently applied to inform the extrapolation of the ‘broad direction of travel’ that may be expected for key trends beyond 2007. A number of key activities were encapsulated within the literature review process: • Review of documents published by the UK housebuilding industry with regard to the strategic thought across private sector, RSL, and local authority business • Review of technical and corporate publications from players across the construction sector including housebuilders and materials business • Review of policy documents (current and historic) to develop understanding of potential political movement on key factors • Integration of pre-existing foresight work in order to bolster the rigour and reliability through the integration of further expertise
Approach
This review process in turn supports the identification of an array of elements essential to the foresight process namely: • Trends • The spread of opinion • Prime drivers underlying trends • Limiting factors such as obstacles and barriers • ‘Black swans’ The ‘black swan’ in this sense refers to an event unforeseen by the majority or the ‘weak signal’ that is usually only considered in hindsight. One such issue that relates to this black swan concept is the ‘self builder’ who occupies a data-poor /rarely studied region of the housing market yet presents a series of potential disruptive trends. The future of the self-build sector was given special focus at the request of the Construction Products Association in order to develop a vision of the potential growth of a housebuilding model that is prevalent in Europe and the U.S. This sector is particularly interesting due to the distinct differences presented in terms of the supply chain, paired with the technologically forward looking nature of the easily accessible modular and kit construction techniques that dominate the sector. The literature review process was ultimately used as a knowledge bank to support the identification of key findings and develop the scenario-set. 3.1.2 Industry Consultations In order to assist with understanding the material generated in the literature review stage and to input into the development of forecasts and scenarios we have carried out a series of in depth consultations with key players within the industry. We have attempted to obtain a spread of views and drawn in expertise from a range of backgrounds. Consultees include representatives from several areas of the housing arena: • Trade bodies • Individual businesses • Policy organisations • Academics • Leading commentators
Approach
3.1.3 Forecasts The status of UK Housing is particularly well measured by an array of updated metrics. The study reviews these metrics in order to establish the current housebuilding baseline in the UK, complete with historical data, picking out key components and characteristics of the market including: • Completions • House Type • ‘Route to Market’ • Bedroom Number • Housing Densities • Structural Technologies Having established this baseline data, we have used well established forecasting methodologies to generate forecasts for specific components of the housing market over the next 10 years. Again, it must be stressed that point forecasting over this time period is fraught with inherent uncertainty and must not be taken as point predictions. The forecasts used in this study were deliberately limited to the task of considering the implications of a continuation of current trends. Our approach has been to use the forecasts to ‘sense check’ whether identified trends in the current market are likely to continue and to inform the construction of the scenarios. 3.1.4 Scenarios The final stage of the project was the development of a set of housing scenarios for 2017. Scenario planning, as a method for examining the future, was originally developed by the RAND Corporation back in the 1960s but was most famously popularised by Royal Dutch Shell and others. Indeed, Shell still publish scenarios every year and the approach has since become a norm in selected industries. A scenario can be defined as ‘an internally consistent story of the future’. In this instance we have created four alternative scenarios that all describe the potential state of the UK new housing market in 2017. The scenarios contain logical and consistent extensions of current trends and drivers for use in strategy development. The application of the scenario set must be as a whole, rather than the selection of a ‘winner’. By implication, the strategy informed by the set as a whole is inherently more robust in the face of uncertainty than adherence to a single expectation built on averages.
10
Approach
3.1.5 Caveats to the method This report has been bounded by the requirements of the CPA and its original brief. As such a series of issues are flagged for future work: 1. We have focused on the UK ‘new’ housing market only. We have referenced in passing the European or wider global housing context however, that was generally outside the scope of this report 2. We have not examined the impact or relationships between commercial property development in the UK or potential market changes that may arise in existing housing stock In addition, an issue with any futures work is that it can date. The Housing market in the UK has been subject to intense political and media debate during the timeframe of this project (April-Dec 2007) and there are several elements which we discuss in this report which are in still in flux. As such an updating process is already underway in preparation for a second release planned in autumn 2008 (this is standard practice in the futures and foresight field). Wherever possible we have attempted to incorporate the most timely reports or data. However, readers need to be aware that a cut off point of 1st January 2008 was used. Any material published after this date will not have been incorporated in this report (all source materials are referenced in the main technical report and readers are able to track back all the assumptions and findings made in this report).
11
UK New Housing Scenarios
4. UK New Housing Scenarios To consolidate the complex range of quantitative and qualitative data contained within the report, four scenarios for the future of the ‘New (UK housing market)’ and ‘housebuilding’ in 2017 have been developed. The scenarios consider key aspects of new housebuilding in the UK, including: • Annual completions • The housing ‘type’ mix • Key spatial dimensions • Materials composition • Relative contribution of housebuilding sectors Significant weight throughout will be placed on the impact of social trends in terms of the relationship between demographics and housing policy, and the issue of ‘consumer influence’ in housebuilding. The scenarios are not necessarily mutually exclusive, rather have been constructed in order to illuminate the interconnected relationships between a number of key factors, including: • The future of the planning system • Effective and sufficient land supply • The future of building regulations and the sustainability agenda • Technological innovation • Inertia in the housebuilding system The result is a scenario set for 2017 that can be used to frame the array of, often contradictory, data that surrounds UK housing to develop strategies informed by uncertainties of the future.
4.1 Scenario 1 – ‘More of the Same’ In 2017 the lack of enforcement provided for the initiatives introduced in the ‘Homes for the Future’ green paper of 2007, paired with the lack of will and capability to change in significant portions of the planning and housebuilding population has resulted in little progress in UK housebuilding. Household numbers continued to rise (in England 223,000 pa through 2007-2017) as the UK population continues a trend of dispersion. With the support for homeownership being sustained as a central tenant of New Labour and Tory governments, UK
12
UK New Housing Scenarios
housing continues to be framed in a classic supply-demand model with significant supply shortage. Annual UK completions remain in the region of 200,000 (165,000 for England) with the dominant contribution, 85-90%, made by private sector builders, many of which are active in the building of market and social-affordable housing. Dramatic increases in housebuilding figures have not been secured due to the bureaucratic weight of planning documentation facing the limited capabilities of regional and local planning bodies. Repeated revision of Regional Spatial Strategy (RSS) and Local Development Documents (LDD) adds years to the clear statement of housing targets. The added burden of design coding for sustainable communities, application for Eco-Towns and New Growth Points overextends all but the most able planning authorities. The confusion surrounding the provision of social and affordable houses persists. The slow formation of the National Affordable Homes agency (English Partnerships and Housing Corp.) paired with the limited social housing budget has significantly limited the building activity of RSLs who are unable to compete for land. In added complexity, the dominant strategy for many regions is to utilise section 106 and partnership agreements with private sector builders in the provision of mixed tenure developments effectively limiting RSLs and LAs to the management of socialaffordable housing rather than the building of developments. Consumer aspiration remains weighted toward a ‘ladder’ in which progression is judged largely by floor space and preference for traditional housing models, as such little movement has occurred in the innovation of the housing mix. In addition the continued shortage of houses continues to limit the integration of consumer requirements into the considerations of housebuilders. The result is continued growth of terrace and semi-detached building, each presenting a share approaching 20%. Of key concern in 2007 was the dominant share held by flat building. Clear efforts to limit the continued building of Flats were introduced yet Local Authorities, threatened by central government intervention following low permissions, continued to grant permission for new flats. This paired with strong flat preference for large cities, maintains the total flat share of building at 40%. Housing dimensions remain at the bottom limit measured against EU housing with an average of 75m2 total floor space, 5 rooms, and 15m2 floor space per room. With little movement in housing models densities remain typically in the region of 35 dwellings per hectare for semi-detached and terraces, with a figure of 100 plus for flats. The material composition of housing has faced some polarisation of technologies between market and affordable housing. Consumer preference and inertia within the system of market building has resulted in a low curve of innovation. In opposition, the high cost burden associated with social-affordable developments has forced an innovative product dominated by the fast built, low cost, timber frame technology. The resultant consumer association of timber frame and ‘affordability’ limits crossover in technologies between market and affordable developments. 13
UK New Housing Scenarios
The step change in materials associated with the Code for Sustainable Homes has not materialised due to repeated clarification and revision of associated building regulations that have been recognised as a significant cost burden and limiting factor on the delivery of housing. Changes in the use of materials has been forced by environmental considerations through persistence of the now defunct Merton Law in the ubiquitous section 106 agreement, however the achievement of zero Carbon in housebuilding remains a distant prospect. Growing concerns over the shortage and state of UK housing has impacted heavily on the Government of 2017 who have reacted with a raft of financial and planning reform initiatives in an attempt to avert a housing crisis.
4.2 Scenario 2 – ‘Meeting the Eco-Challenge’ Housebuilding in 2017 has undergone significant change since 2007 with the pursuit of zero Carbon in methods and materials of housebuilding as the central driving force, with the now compulsory Code for Sustainable Homes (CSH) a dominant factor. The drive towards zero Carbon in housebuilding reflects the broader political and social pressures impacting on high carbon emitting industry including construction and power generation. The phasing of emission reductions set out in the green paper is proposed by most commentators to be running 5 years late, with homes emitting approximately 25% less carbon in 2015 and some form of net zero Carbon across new housing achievable in 2020. Despite pioneering housing technologies such as BedZED in 2006 paired with the increased movement of CSH level 5 and 6 prototype housing models into viable widespread production by 2010, significant factors have limited progress. Great delay can be associated with the difficulties in the clarification of the Code for Sustainable Homes running up to 2010, as the initial perception of the Code amongst the builder as an insurmountable ‘cost burden’ presented a number of obstacles during consultations. During the same period the Code was caught in broader discussions regarding the methods and boundaries by which the Carbon Footprints of individual materials and methods could be measured. The debate contributed to those already caused by the bureaucratic weight associated with the development of the updated BRE Green Guide and Part L Building Regulations. The greatest obstacle for acceptance of the Code was the intended relationship between locally and nationally generated and distributed power, and the consideration of a single house’s responsibility to offset the emissions associated with the national grid. The carbon awareness of the homebuyer has continued to grow, fuelled by the tax breaks earned by those taking the ‘greener’ option. However, despite the development 14
UK New Housing Scenarios
of an eco aware culture amongst the homebuyer, the increasing energy demands of technologies expected as standard in the average homes; wireless connectivity, electronic appliances, air conditioning, etc have limited reduction of energy use per capita. The result has been a force exerted upon the housebuilder to be innovative in the provision of ‘eco-friendliness’, balanced with consumer requirements for home contents associated with connectivity, entertainment, and day to day activities. During 2007 and 2010 effort toward zero Carbon appeared to focus on government funded housing schemes with the RSL built social-affordable houses pioneering the use of new materials and methods directed by pursuit of Code level 6. In 2010 such developments were dominated by timber and light steel framed housing. However, budget limitations on RSL building reduced the capacity for widespread Code 6 housing. Similar innovation in market housing was delayed by the significantly weaker regulation of private builders, although section 106 and the legacy of the Merton rule did secure some progress. In 2017 the future of market built houses is informed by crossovers in technology well established in affordable housing. Throughout the period 2007 and 2017 the development of zero Carbon ‘Eco Towns’ faced continued delay, with argument concerning the concept’s feasibility and cost. This resulted in little progress in transferring proposals from the drawing board that continues in 2017. In all, change in housebuilding between 2010 and 2017 has centred on the materials composition of new housing. As such, little progress has been made in terms of the quantity and affordability of housing since 2007, with annual completions for the UK remaining near the 200,000 mark. However, materials changes and the revision of Part L has impacted on the methods of housebuilding as the essential role played by offsite manufactured elements in achieving level 6 is consolidated. By 2017 the conflict surrounding the Code is only now beginning to settle as efforts are channelled into making level 6 housing the norm throughout all new housing.
4.3 Scenario 3 – ‘The Rise of Offsite’ In 2007 the maturity of the Modern Methods of Construction (MMC) agenda had fuelled increased awareness of the potential for offsite manufacturing methods in UK housebuilding. The role of offsite produced components was already established in a number of joinery products; windows, doors and roofing elements that were fitted or assembled to some degree ‘offsite’. With the significant activity of BoKlok, Huf Haus, and Corus Framing Solutions in 2007, a base for expansion of offsite, MMC housebuilding in the UK was already established. In 2017 the MMC-offsite concept has come to dominate UK housebuilding, with the majority of new housing featuring high proportions of materials that have passed through some form of offsite assembly process. The progression of such innovation can be traced to several key factors.
15
UK New Housing Scenarios
The initial success of the MMC agenda, which focused on timber frame, light steel frame, concrete, and novel brick builds, presented an evolution of technologies already well established in the housebuilding of post WWII UK that was easily assimilated into the housebuilding industry of 2007 onwards. The increasing cost burden faced by the housebuilder, who was finding competition for limited land supplies with commercial developers increasingly difficult, further presented a drive toward the lower skills, materials, and time costs of factory built housing. By 2010 the burden of costs had risen still further as the rigours of the Code for Sustainable Homes and section 106 agreements meted out by planning bodies facing the demands of the affordable homes agenda. The result was a significant pressure towards a step change in the product delivered by the UK housebuilder. In 2007 a degree of organisational inertia was expected to maintain any remaining elements of the traditional ‘craft based’ industry. However, the element of ‘risk’ had long since stopped being associated with offsite housing as the offsite presidents set by commercial developers and pioneers, such as Toyota housing, had established the role of offsite housebuilding across the EU, Far East, and U.S. In 2017 the increasing maturity of offsite housebuilding has impacted on the supply chain, as the early emergence of globalised assembly lines for UK housing, adopting the ‘just in time’ model of manufacture are beginning to locate portions of the UK housebuilding industry (and its suppliers) ‘offshore’. The rise of offsite has also impacted on the house type mix and housing dimensions as new capabilities in design present new architectural possibilities to address the need for high density housing to which the home owner aspires. The beginnings of the move toward very high levels of offsite produced components in new housing between 2007 and 2010, precipitated several drivers that would fuel further growth on to 2017. The increasing use of offsite elements drove evolution, in the skills profile of the UK housebuilding industry, away from traditional craft based trades towards skills of assembly in a manner that would effectively make the growth of offsite housebuilding irreversible. The establishment of offsite manufacture as a fundamental feature of UK housebuilding by 2015 presented new capability in the housebuilding industry that was able to extend the element of consumer choice in fixtures and fittings that was already evident in 2007. As such housebuilding of 2017 increasingly moves towards the mass customisation model associated with car manufacture, with standard features and extras lists are presented to the home buyer together with choices of layout and dimensions for those buying off plan. The exact nature of the offsite elements that dominate the components of a new build house is divided between the 2-dimensional components, such as joinery products, utility fitted stud walls, etc, and 3-dimensional volumetric units such as ready fitted kitchen and bathroom units. 16
UK New Housing Scenarios
The result is that onsite activity in housebuilding is increasingly focussed on initial groundworks or foundation setting, assembly of offsite elements, and finishing. In terms of housing quantity the increase of offsite by 2017 still points to ‘potential’ increases in the delivery of housing, due to the limitations faced by housebuilders, as the new practices and supply chains required by offsite were established. In addition, the rise of offsite presented new challenges for building regulations that faced criticism for stifling the rate of innovation in some areas of housebuilding.
4.4 Scenario 4 – ‘Planning Constraint’ In 2007 New Labour added weight to the presentation of a ‘planning reform agenda’ introduced in 1997, with the publication of policy proposals for Planning and Housing that proposed streamlining of the planning system with added emphasis on the delivery of housing. However, far from a streamlining process, the fruits of such policy saw large increases to the bureaucratic burden already facing planning bodies in the UK. New measures between 2007 and 2010 saw; repeated revision of RSS and LDD documents, competitive application for awards of New Growth Points and Eco-Towns, restructuring of the green belt, design coding, and the inclusion of organisations such as CABE in the development of ‘good design’ and ‘sustainable communities’. Far from streamlining the system to facilitate the fundamentals of identifying land supply for the delivery of new housing, the bureaucratic weight added complexity and isolated the planning system as the single greatest obstacle to progress in housebuilding. The planning constraint was exacerbated by the significant skills and budget shortages that faced planning bodies in 2007. In particular the apparent desire, emerging from central government, to balance bespoke housing with high volume housebuilding remains a significant challenge for the capabilities of planners, local budgets, and the housebuilding industry. The apparent flux in the planning system drove a ‘wait and see’ attitude amongst housebuilders and local planners, through 2008 to 2010, as the dust settled over the revised systems supporting housebuilding delivery. This effect was firmly consolidated by the significant proportion of developments for 2010, which were already negotiated and in place by 2007. In effect, the future of housebuilding in 2010 was already established in 2007. During this period a prolonged stabilisation of housebuilding occurred with little change in the quantity, dimensions, and composition of new housing. This was exacerbated by the downturn in the UK economy and housing market. In terms of annual completions, the growth associated with market recovery post 2000 peaked in 2007 with stabilisation in the region of 200,000 completions pa in the UK persisting into the next decade. Central to the planning constraint in 2017 is the fragmented carrot and stick approach to housebuilding delivery, that sees incentives such as the much contested planning gain
17
UK New Housing Scenarios
issue, being forwarded as the Community Infrastructure Levy (CIL), and the Housing and Planning Delivery Grant come into force alongside section 106 agreements and public-private partnerships. In all, the measures present little in the way of instruments to enforce or compel action within planning bodies and housebuilders. Throughout the period 2007 to 2017 the prime governmental motivation of regional and local authorities, to increase the delivery of new housing, remains the economic growth achieved through increased local populations and homeownership. This argument is consolidated by the movement to establish the single regional strategy that began in 2015. However, significant opposition faced this portrayal of housebuilding within the minds of regional and local planning bodies. Despite the CIL and the Housing and Planning Delivery Grant, concerns remained over the impact of associated infrastructure costs associated with new developments on local budgets. Furthermore, the impact of increased local housing supply on the price of existing stock further developed the ‘nimbyism’ of some regions in response to new housing. The affordability agenda established in 2007 did lead to some advance in the delivery of social-affordable housing through public sector land release, but the target of 70,000 affordable homes pa in England was never firmly established due to the murk surrounding definitions of ‘affordable’ and the crossover between RSL and private builders. In 2017 regional differences in the strategies of planning bodies can be, in part, associated to the perception of ‘affordability’ such that the nature of housebuilding is regionally distinct. In the South East the ongoing development of the Thames Gateway paired with the impact of the Olympics has lead to extensive new building. However, in the North affordability does not present the same challenges, and efforts to regenerate and return existing empty stock to the market contribute significantly to addressing the regional housing demand.
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The Evidence Base
5. The Evidence Base As discussed, the scenarios are based on an extensive research and analysis process that has resulted in a 200 page technical report. By way of introduction, the following findings have been drawn out: 5.1 PESTEL2 Analysis The extensive PESTEL analysis presents a robust exploration of trends, drivers, their potential future, and implications for players/stakeholders in the UK housebuilding industry. The scope of the discussions defies adequate summary, however, a number of central aspects of ‘change’ may be considered: • Reformation of the planning system, in terms of the removal of obstacles for land supply and the incorporation of added layers of complexity in the nature of the application process. • Magnification of perceived housing shortages and increased profile of affordability. • Large scale innovation in construction materials governed by powerful regulatory structures paired with selective R&D spending, which fuels MMC and Offsite development. • Evolving structure of housebuilding industry in terms of the specific nature of contributions from the traditional ‘market’ and ‘social/affordable’ sectors. • Demographic changes that present an evolution in the profile of aspiration in coming generations of urbanised homeowner. • Evolution in the relationship between housebuilders and local planning authorities with increased use of partnership agreements, section 106, and mixed tenure developments. • Blurring of traditional boundaries that appears to open ‘housebuilding’ to an array of contractors, commercial property industries, and materials manufacturers. • Increased application of RSLs and public land as a solution to affordability • Continuation of the trend towards distinct housing ‘need’ (numbers, architecture, cost/price) between UK regions. 5.2 Forecasts As proposed, a key outcome of this work is a set of 10 year forecasts of indicators that illuminate key dimensions of the future of the Housing Market and Housebuilding in 2017. The forecasts integrate quantitative and qualitative considerations about the future of existing trends to develop the following forecasts of UK housebuilding in 2017:
2 Political, Economic, Social, Technological, Environmental, and Legal/Regulatory’
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The Evidence Base
• 200,000 completions per annum in the UK (155-160,000 in England) • 85% continue to be contributed by the Private Sector, with the remainder from a redefined Registered Social Landlord sector • A housing mix that overall sees a plateau in flat/maisonette building in the region of 40% share of total with terrace and semi-detached each approaching 20% share, but presents very distinct regional profiles • Internal dimensions reach an EU minimum in 2007 at an average floor space of 76m2, 4.8 rooms, and 15.8m2 average room floor space • Average building density is highly distinct between regions depending on local housing mix, on average 40 dwellings per hectare for terraced and semi-detached models and 100+ dwellings per hectare for flats and maisonettes. • Timber frame technology continues to grow to reach 25% share of total UK building. • Self building remains stable between 15,000 and 20,000, with minor fluctuations according to fashion. Overall the vision of housebuilding appears to be one of stability in terms of the number of houses built due to persistent land supply restrictions derived from the planning system and the inertia of the housebuilding industry. However, continuation and enhancement of innovation and evolution in the materials composition of housing is supported by a number of trends. Importantly, historical evidence presented in the forecasting section emphasises that outside periods of radical economic change and dimensions of housebuilding continue to fluctuate – the influence of a series of non-economic trends and drivers is thus clear. 5.3 Industry Trends 5.3.1 Housebuilders Analysis of key documents including the Callcutt Review of Housebuilding Delivery (2007) paired with review of annual reports from leading housebuilders presents a series of key trends: • A building pursuit of an environmentally sustainable product – technologically and methodologically. • The consideration of design for affordability and entry by market builders into the social-affordable building market. • Patterns of incremental and radical innovation, driven by cost considerations and regulatory enforcement. • The continued encroachment of ‘mass-customisation’ principles into strategy, facilitated by ICT and Offsite manufacturing technologies. 20
The Evidence Base
• The adoption of investor business models driven by increasingly challenged current trader model of housebuilding. • Consideration of increased consolidation vs. major industry/supply chain restructuring, in response to new technology and new business models solutions to a spiralling cost burden. • The continued adversarial relationship between housebuilders and local authorities with conflict over land supply, ‘land banking’, and section 106 agreements • A distinct shift in the strategies, potential, and aspiration of traditionally ‘social’ builders towards market building • Increased consideration of ‘social components’ in the form of consumer behaviour and political imperatives, such as ‘sustainable communities’ driven by innovation in design and evolution of homeowner knowledge/aspiration. 5.3.2 Construction Materials Business In continuation of the industry analysis, the study carried out a major review of all the major CPA member’s publicly available literature as well as the materials available from associated trade bodies. Again a series of common trends were evident: • The pursuit and achievement of environmentally sustainable product portfolios paired with operational efficiency within facilities. • High rates of product innovation dominated by aesthetics, functional capability, affordability, and ease of use considerations. • Heavy reliance on the building regulations framework to guide technology strategies. • Evidence of evolving relationships with Housebuilders, including joint venture. • High uncertainty and perceived risk concerning the future mix of technologies in terms of favoured structural technologies and the nature of hybridisation.
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Conclusions and Recommendations
6. Conclusions and Recommendations The UK new housing market is a complex and evolving state. In terms of the Scenario Planning exercise, an array of potential futures are presented for exploration. The proposal of this study is that the ultimate reality will fall within the bounds of the four scenario set, forming a hybrid of several rather than the realisation of just one. As such, the scenario set presents a valuable resource in the development of strategy attuned to the complex and uncertain future. However, some conclusions concerning the nature of the ‘probable’ future are possible. Overall we would say that the weight of evidence has to point to little overall change in the new building market over the next ten years - at least in terms of completions and volumes. In terms of the nature and characteristics of the houses being produced, and hence the products inputting into the buildings, we see the potential for significant change to occur. Any change in the UK new housing market appears to be driven primarily by the following key issues: • The future of planning reform; land supply and structure of planning approvals. • Methodological and technological innovation in housebuilding and materials. • The enforcement of environmental sustainability measures. • The future industrial structure and complementary relationships between key players and stakeholders across UK housebuilding, particularly the relationship between housebuilders and materials manufacturers. • The impact of a growing ‘Social component’ into housebuilder strategies in the form of consumership patterns and the influence on political instruments. • The health of the economic climate in terms of capital available for new development and the financial capabilities of the homebuyer. 6.1 What are the implications for Construction Products business? As stated elsewhere in this report, point forecasting over this time period is very difficult. In addition, pinpointing the implications for specific CPA members is also very difficult as all will have slightly different business models, risk v reward calculations, cost overheads etc – even if supplying into the same market sector. For this reason the conclusions below are necessarily generic and we rely on individual readers to assess the implications for their own operations. The first point to make, which seems obvious, is that the impact of any changes to the UK new house market on an individual firm depends upon that firm’s exposure to that market (either directly or indirectly). 22
Conclusions and Recommendations
Because of the blurring of boundaries between housebuilding and commercial development we know that some firms are unsure of the split in their market. Likewise, studies such as this allow firms to consider ‘indirect’ forces which might impact upon their business. The rise in MMC has already seen the major housebuilders in their own annual reports talk about consolidating supply chains. We would expect this trend to continue over the next decade. This consolidation and ‘locking in’ of key suppliers will also be accompanied with efforts to ‘green the supply chain’. This will pass responsibility for meeting zero carbon targets onto suppliers and hence will increase costs associated with accreditation and quality control. As offsite becomes more prevalent CPA members will increasingly be selling their products into a ‘just in time’ manufacturing supply chain. This might not be in the UK as ‘off site’ can and will mean ‘off shore’. Several large CPA members already have manufacturing facilities abroad and we would anticipate that the capacity of these will grow. In terms of base housing technology, the rise in MMC/Offsite combined with the sustainability agenda would suggest that Timber Frame construction would seem to be in a very strong position to capitalise on this. No judgement has been made in this report on the technical merits of timber frame versus other methods. It merely appears that Timber Frame has the stronger market momentum at this point in time. Some CPA members will clearly need to consider their routes to market. Those with retail operations will continue to serve the DIY, Self Build and small builder market but will need to understand better how this market operates. One of the trends detected in product development was the allocation of risk within the supply chain. We use the extreme example of asbestos within the report and housebuilders will expect to pass the risk for novel materials or products down the supply chain to suppliers. The ‘precautionary principle’ enshrined in UK environmental law also means that the adoption of new building materials, such as those emerging from the nanotechnology industry, are likely to face a cautious uptake due to this risk aversion. Areas to consider here would be the difficulty of defining interfaces. For example, if an offsite product fails onsite, investigations will be needed to ascertain where the responsibility lies. In addition, this raises the spectre of a ‘major product recall’, which although quite common in other manufacturing sectors would be very difficult to carry out if that product was already part of a building. Housebuilders will probably respond to the need for consumer ‘choice’ through the extension of the schemes they already have, which allow customers a degree of control when specifying interior finishes, kitchens and other second fix items when buying. CPA members will need to be aware of this and will increasingly be asked to develop product lines which support the individual brands of the housebuilders. In this way we would expect items such as white goods, flat screen displays and integrated technology features to all become ‘construction products’ over this period.
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Conclusions and Recommendations
Product innovation will continue to be driven by Building Regulations, which themselves will be driven by political and policy developments. Hence, the major driver here is still the environmental agenda. As we saw in the review of members and trade sites, environmental innovation is central to many strategies. Looking forward we see very little change in this. In fact, as the climate change debate moves increasingly from emission reduction to adaptation, we would expect to see an emerging market for products which have this adaptation element designed in. 6.2 Recommendations The development of this report has give rise to a series of recommendations that the CPA could take forward, either on its own or in partnership, for the benefit of its members. •
The boundaries between housebuilding and commercial development are blurring. Several of the people we consulted, especially from the CPA membership, indicated that UK housebuilding was a small market for them and they tended to see the wider UK construction market as the place they sold their products. The approach taken in this report could be extended to take into account the wider construction market.
•
Collected data and scenarios consolidate the role of the CPA and its memberships as ‘highly active players’ in determining the future of UK housebuilding. The potential for coalition and collaboration across the membership for agenda setting and the pursuit of common goals is clear.
•
This report focused on the UK only and has not dealt with the European and global housing market. Given the recent impact of the US sub-prime crisis and the inevitable rise in global manufacturing facilities to support offsite/MMC, the CPA should consider a study which examines the impacts of globalisation on its members and implications this might have for the UK construction products sector as a whole.
•
There is a lot of publicly available data regarding housing completions, household composition etc. However, little work has been done on housing aspirations within the UK, nor on public attitudes to offsite construction, eco-homes etc. Most of the assumptions around this are derived from anecdotal evidence or studies which are now dated.
• The Self-Build market, which we believe will remain a niche concern over the time frame of this report, is understudied. There is a lack of good quality data around the sector and the behaviour of suppliers into the sector is not well understood.
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