31st July 2024
Company
What is the outlook for our industry under the new government?

Market confidence & momentum

A change in government has swept in a fresh sense of positivity, which is likely to inspire greater confidence and market movement. It will of course take Labour an initial period to settle in, with green shoots materialising from 2025 onwards. The housing market is expected to become more stable, and investors will be more sanguine about its prospects for the next five years. In the short term, there is also a potential slight uplift in house prices expected.

As inflation remains at 2%, in the coming six months we should see the Bank of England base rate drop to approximately 4 - 4.5%, bringing interest rates down further and continuing an improving economic trajectory. 

Unlocking delivery of ambitious targets 

It’s encouraging to see that solving the housing crisis is top of the agenda, with the Chancellor announcing plans for a ‘growth focused’ approach, reforming the National Planning Policy Framework and re-introducing mandatory housing targets of 1.5 million.

The King’s Speech reiterated the significant legislative changes, including the Planning and Infrastructure Bill to accelerate the delivery of high-quality housing and infrastructure, also underscoring “investment in industry, skills and new technologies.” This can also involve innovative construction methodologies like offsite, which can be part of the answer to the chronic housing shortage (although not a silver bullet).

The pressure to maximise land and housing stock is considerable, so looking at releasing more land such as ‘grey belt’ is a good idea. Brownfield, while it should remain the top choice, does bring more challenges, but there is certainly still ample potential to drive brownfield regeneration in inner cities, as we know.

Boosted affordable housing provision

Measures are expected to ensure that more affordable homes are delivered using existing funding, and Labour has committed to prioritising social rent, which is a great step to help those at the bottom of the ladder who need it most. 

This will also have positive implications for the housing association (HA) sector, which has seen lower development activity for the past 2-3 years, due to factors such as economic uncertainty, higher borrowing costs, fire safety regulations, damp and mould issues, carbon requirements and more. Research reveals that, while completions increased, HA project starts in Q1 2024 were 18% lower. The government will pour more capital into grants to support HAs, resulting in an upturn in building.

On a related note, Shared Ownership (SO) is a fantastic tenure that should stay a priority for the government to increase homeownership. The ban on leaseholds – the basis of SO – will hopefully not affect it too much (as Savills reports that SO homes have contributed £6.5 billion in turnover to HAs in the past decade). 

Fixing the acute skills & labour shortages

At the pre-contract stage, we face a severe shortage of planning officers. According to government figures, only 1% of local planning authorities determined 60% or more major applications within the 13 or 16-week time limits. This is a huge bottleneck to much-needed delivery, so it’s promising to see Labour hitting the ground running by seeking to appoint 300 planners to fix the resourcing gap. However, it is important to consider the time and investment required to get fully trained professionals at scale.

Government also needs to boost the post-contract side when it comes to construction labour and quality on sites. Bringing forward 1.5 million homes is a brilliant goal but requires a large enough skilled labour force, something the UK has struggled with since Brexit. A CITB report forecasts that UK construction output will increase by approximately 2.4% per year between now and 2028, requiring over 251,500 extra construction workers. 

Additionally, despite representing half of the population, just 15.8% of the UK’s construction workforce is female (ONS). We need to correct that and, in fact, engage with all young people earlier to showcase construction as an appealing industry. This involves providing better career advice in schools, to show that learning a trade is just as good and fulfilling a pathway as university. 

To boost skills, quality and output, it’s critical for government to invest more into apprenticeships and make them worthwhile for people. Indeed, Labour is planning to create a Skills England body to oversee technical education and apprenticeships, which will help. Trade body organisations should also drive industry transformation with a unified and holistic approach. RICS, for instance, is calling for a cross-department Built Environment Skills Taskforce to identify workforce gaps and opportunities.

Continued growth of the BTR sector

Looking ahead, the government should consider Build-to-Rent (BTR) as a strong, established tenure within the residential mix. It’s a fast-growing sector that is attracting investors by offering a stable income, and has proven its resilience. We need purpose-built rental homes, as mortgage lending remains impacted by higher rates. Moreover, many of the younger generation do not wish to buy a property, preferring a more flexible way of living. Society has evolved towards a rental model in many areas, including homes and cars, and BTR provides a high-quality living experience, with the all-important elements of community and placemaking along with top amenities. 

Knight Frank highlights that 2023 was a record year for BTR, as investors spent £4.6 billion on the sector and that momentum is ongoing into this year and beyond. Rund is consulting on schemes comprising close to 5,000 BTR units nationwide, and we see tremendous promise in this space.

Focusing on later living is crucial

The UK has a care crisis, and more focus is needed on later living and adapting to an ageing population. The JLL Seniors Housing Report reveals a shortage of up to 46,000 homes in the next five years for the country’s seniors. We need to build accommodation, rather than relying on hospitals, where people can also access the appropriate care facilities as they age. 

JLL states that the living sector represents one of the biggest opportunities in the coming years, and delivery of housing should cater for every need from ‘cradle-to-the-grave', progressing from purpose-built student accommodation into co-living, BTR, single or multifamily homes, and retirement living. While it is necessary to think about first-time buyers, we should be focusing on later living just as much, because this is what will drive the market. 

Resolving nutrient neutrality issues

Clear ongoing guidance is needed from government to tackle the major challenge presented by the question of phosphates and nitrates, which has stalled development (around 160,000 homes, according to the Home Builders Federation).

A change of rules was referenced in the King’s Speech through a planning bill that proposed a solution whereby projects can start on the agreement that they will undertake any necessary mitigation of pollution prior to selling any homes. This will remove some of the brakes.

Final thoughts

The resilience of the construction industry is enduring and Rund is optimistic about the future. Following a turbulent few years the consensus is now on a stabilising sector, albeit with challenges remaining and targets stringent. By closely monitoring and responding to the political/legislative landscape, projects can move forward with the best foot forward. 

Get in touch with our team to speak with one of our regional offices and learn more about our Building Consultancy, Cost Consultancy, Project Management and Employer’s Agent, Clerk of Works, Joint Venture/Development Monitoring, and Sustainability services.


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