Would the Increasing Use of Prefabrication Methods in the Construction Industry Significantly Reduce the Housing Shortage Within the UK?
There is a widespread belief that a housing shortage exists in the UK. Although all regions are expected to see growth in household numbers, the greatest pressure will continue to be felt in Southern England (i.e. London, the South East, South West, and Eastern regions.) For example, the population of the South East region alone is expected to increase by 50,000 a year – about 1 million extra homes in the next twenty years or so. While 70% of population growth is in London and the south of England only about 50% of house building takes place there. The housing industry has in recent years been under severe pressure to meet the increasing population. For this reason the UK is presently suffering from a high housing shortage, which is likely to rise over the next 15 years, due to the high volumes of migrant workers from the EU and the increase in population. The total number of people living in the UK grows whenever there are more inward migrants than people leaving the country. International inward migration is a significant contributor to population growth. Recently the Government Actuary’s Department increased its figures for net inward migration to the United Kingdom from 95,000 to 135,000 people per year for the period to 2021. It is therefore necessary for the construction industry to dramatically increase production in house building in order to reduce the effect this shortage will have on the UK such as consequent impacts on house prices, conditions, overcrowding and homelessness.
Despite the strong economy, housing production by both private developers and social housing providers has been falling. According to the Joseph Rowntree Foundation, the number of homes built during each of the past five years has remained static at 154,000. It is for this reason that house prices continue to soar. It is clear that the construction industry must build faster and more efficiently to meet the increasing needs of the UK housing market. The UK construction industry has been known for its lengths and costs in completing construction projects therefore leading to slower completion of developments. This is a wide spread problem that needs to be addressed for the housing demands to be met.
Household projections, based on 1998 figures from the Government Actuary’s Department and past trends in household formation, suggest that between 1996 and 2021, England will need to accommodate an extra 4.3 million households. Estimates suggest that the backlog in 1996 was approximately 650,000 households. It seems likely that the figure has increased over the last five years because supply has not matched demand.
There are difficulties within the UK construction industry to which attention has been drawn by the Latham and Egan reports. Structural, technical and cultural change in the years ahead may lead to a sector better able to respond to the demands upon it. With the use of better management techniques and the implementation of new technologies in new housing markets, projects lengths (i.e. Construction time) and costs could be significantly reduced. There are many ways of rapidly reducing completion time of construction. In this day and age these approaches are known as Modern Methods of Construction, such as prefabrication. A radical approach for cutting project time by using different techniques, such as off-site construction and factory conditions.
Pre-fabricated homes – One area highlighted to improve the current situation by the Government and others within the industry, is that of off-site construction. Prefabrication was used to provide quick and cheap homes after the Second World War where nearly 160,000 homes were prefabricated, and is being proposed again as a solution for providing affordable homes. Off-site construction has made huge advances since the Second World War and even more over the last couple of decades, offering methods which have been proved to be quicker and cheaper than traditional house building methods. One of the major issues associated with prefabricated homes is the stigma attached to them, with many people seeing them as a poor alternative to traditional construction. A MORI poll in 2002 indicated that 90% of people would prefer to live in a traditional home rather than a prefabricated home, showing that the UK population along with the construction industry is still slightly reluctant to place their faith in prefabricated homes.
The benefits of prefabrication are well known, with off-site construction offering a controlled environment where building elements can be produced quicker than traditional methods, and at a supposedly lower cost. At its best, prefabrication can see some 40-week building programmes being reduced to 16 weeks, which if used on a wide scale could see rapid growth in the UK’s housing stock. There is also an advantage held within the factory environment, offering greater safety for workers than on-site and also the controlled environment makes it possible for a consistent, high quality finish to be achieved. With skills shortages on-site, the opportunity to produce standardised building elements in factories could also further improve standards and quality.
Built in clean, efficient, factory conditions not in the often chaotic circumstances of construction sites, in unpredictable and inclement British weather – may make for higher standards, faster construction as well as a safer industry. Better procurement methods may mean less friction between clients, professionals and builders. Shortages of sufficiently skilled labour may also be remedied, to some extent, by factory. Therefore this method of construction could be seen as a potential solution to the housing shortage in the UK.
Currently prefabrication is not a common approach for most contractors to use. The main reason for this is because off-site manufacture (OSM) of house building components currently has the capacity to produce around 40,000 homes a year, far short of the figure needed to meet official housing projections. As such, the Government is promoting pre-fabrication and off-site manufacturing techniques, looking to methods such as steel and timber frame to help solve the housing shortfall, particularly in relation to quality and site skills shortages. Even with prefabricated homes having been produced for the past 100 years, they are still relatively untested in the UK on a large scale, and therefore the verdict is still out on whether they are suited to the UK and its construction industry. There are already companies in the UK trying to build affordable housing by using off-site construction methods, such as BoKlok, Ikea’s biggest idea yet. Having seized the market for affordable home furnishings in the past decade, the Swedish retail giant is now planning to provide the homes themselves. Planning permission was approved for the first British BoKlok development: 36 flats in St James Village, Gateshead, due for completion within a year. More will follow – many more, probably, since BoKlok is quick to build, energy efficient and aimed at households earning between £15,000 and £30,000 a year.
Currently they tend to use more traditional methods, and therefore this issue has to be tackled to bring prefabricated construction further into the lime light of construction.
The affordable housing sector represents a prime area of growth for the prefabricated buildings market. The benefits of rapid build times and the cost efficiencies resulting from the volume production of cellular units incorporated in the overall structure tend to result in affordable rents and value for money for the public housing sectors. A wide range of house builders such as Bellway, Westbury, Bovis, Lovell, Willmott Dixon etc, are using prefabricated buildings in affordable housing projects and their use has increased substantially during 2003-05.
If every household is to have the opportunity of a decent home, some fundamental changes will be needed not just to the mechanisms we use to deliver new homes – with reforms to the effectiveness of our planning system and our house-building industry.
In conclusion, the issue of housing shortage within the UK may become one of the most significant social and economical problems being faced over the next twenty years. Therefore, the aim of this dissertation is to explore whether the implementation and use of Prefabricated Construction on a wide spread scale could have a significant positive impact on the housing Shortage currently being seen in the UK.
There is a concern that in a number of critical areas, the emerging policy framework is based on unrealistic assumptions. It is questionable whether it will in practice deliver the necessary supply of houses to meet the UK’s economic and social requirements over the next twenty years.
“Britain is heading for a property shortage of more than a million homes by 2022 unless the current rate of house building is dramatically increased, according to reports from the Joseph Rowntree Foundation (JRF).”
The UK has been known for its shortage on housing over the past 10-15 years, and therefore there are many sources of literature relevant to the study. Such sources are Government Policies, reports, articles, books, surveys and case studies that outline the scale of the problem and give statistics, such as the number of homes that need to be built in order to relinquish this status in the UK. The shortage of housing is making house prices soar from year to year, making it much harder not only for general house buyers but especially for first time buyers. This issue does not seem to be focused on in any literature as there doesn’t seem to be any long term solutions for it, making this topic an ever growing problem.
Government Report – The Barker Report (2003) Review sets out a series of policy recommendations to address the lack of supply and responsiveness of housing in the UK. The report further goes on to outline a number of key factors which are to blame for the housing shortage, including the lack of houses being built as well as the extra provision of land by local authorities to make it viable for developers to achieve the build targets to decrease the housing shortage. The report argues that a UK housing Shortage is having widespread economic and social consequences. The government estimates that by 2016 there will be 3 million new UK households. It recently published the Sustainable Communities plan outlining a major new house building program to help meet the growth. The government is said to be encouraging Modern Methods of Construction, which it says can achieve “a step change in the construction industry to produce the quantity and quality of housing we need.”
Housing completions are expected to steadily increase in the longer term in line with proposals and initiatives to address the general housing shortage, particularly the provision of more ‘affordable’ housing in key urban areas. However, a significant increase in completions is largely dependent on the overall economic environment, consumer confidence levels etc, in addition to land availability and the planning approvals process, which remains a key barrier to growth at present. While this was focused on in the Barker Review in 2004, house builders are reporting few improvements to date in the planning process and the availability of land for development is a key long term issue.
On her follow up to the 2003 report, Barker 2004 states that planning authorities and processing of applications need to be improved, whilst also the availability of land is becoming increasingly harder. She pinpoints reforms to the planning system; incentives for local authorities to support development, and a higher turn around from the construction industry, including completing site developments as quick as possible. These issues need to be focused on as they are key elements that could be contributing to the current shortage in the housing market. Barker (2004) encouraged the government to change its planning policies to allow more houses to be built on Greenfield’s, as she claims at present there is not enough land available for the housing demand to be met. Barker also called for a substantial increase in productivity from the construction industry. She states in her review that to reduce the current rate of housing inflation from 2.4% to the EU average of 1.1%, an extra 120,000 houses will need to be built per annum on top of the current output.
The overall message from both Barker reports (2003/2004) is the clear need for more houses to be built in the UK, especially the large problem areas such as the South-East and London in order to become any closer to achieving larger number of homes available in the UK. However there are no recommendations on how it might be possible to reduce programme lengths and costs. This is a key area that needs to be identified within the dissertation.
Mathiason (2003), already claimed that as long as inflation continues to rise, house builders will be under no obligation to build as they will be profiting from the land that they already own, as the price is ever increasing due to shortage. Perhaps the use of MMC and faster construction times would drive the developers to building on these lands, but they will never be fully implemented unless planning policies are also reviewed.
Prior to the Barker review the Government drew up a Sustainable Communities Plan (OPDM, 2003) to tackle several issues, including the urgent requirement for affordable homes. The plan aims to set out a long term programme of action for delivering sustainable communities to both urban and rural areas. One of the vehicles highlighted for delivering these sustainable communities is off-site construction, with modern methods of construction earmarked for additional investment. It also suggests heavy investment in public transport and rail links in particular, to help with the decentralisation of London, which will combat the lack of available land and high demand for housing in the South east.
The Sustainable Communities Plan (OPDM, 2003) also provides the Housing Corporation with an extra £100m for its £200m Challenge Fund for encouraging modern methods of construction. The Challenge Fund, run by the Housing Corporation offers incentives to developers using innovative methods for building communities. It is however, one of the only initiatives running to encourage the use of modern methods of construction.
The Joseph Rowntree Foundation (2002a) predicted that Britain was heading for a housing shortage of more than a million homes by the year 2022. As well as launching Land for Housing, the report from a JRF Inquiry, the conference is debating Britain’s housing in 2022, the first in a series of working papers examining the long-term measures needed to tackle social disadvantage. Both warn that the impending housing crisis will hit hardest in London and the South. Although these regions contribute 70 per cent of the rising demand for new homes, only 50 per cent of new homes are currently being built there. By contrast, in the Midlands and the North, there are growing problems of low demand in some areas, and of empty and abandoned property. Lord Best, Director of the Joseph Rowntree Foundation and author of the working paper, said: “We estimate that the difference between housing demand and supply will have widened into a yawning gap of 1.1 million homes in England alone by 2022: most of it in London and the South East. This genuinely shocking statistic shows why the time has come for policy makers to recognise that a plentiful supply of new and affordable homes is of the greatest importance the nation’s future health and prosperity.”
AMA Research has published the Fifth Edition of the “House building Market UK 2006”. Recent changes in the overall housing market and corporate activity amongst house builders have renewed interest in the house building market. The fifth edition of this report focuses on the recent developments in this specific sector along with the characteristics and corporate activity of the leading suppliers to the sector. The report provides information on national and regional suppliers within the house building market and provides a comprehensive review of the major aspects of the new house building sector.
Off-site construction has a reputation of producing drab, uncharacteristic boxes for homes within the UK population. However, the face of prefabricated homes has changed for the better with Dyckhoff (2003) commenting that they have been transformed into the speedy, affordable loft-style saviour of Britain’s housing market.
What the literature above demonstrates is that there is a clearly growing problem with the housing market. Shortage of housing is increasing and still nothing has been pinpointed as the route cause, this seems to be an ever growing problem and a clear solution has not been found. Certain claims made by authors in previous articles and reports will need to be looked into for there validity, so that a clearer understanding can be brought across as to the route cause.
In conclusion to the above, this dissertation will therefore be focusing on the following Research question:
It is necessary to begin the dissertation by looking into the theoretical ideas behind the emergence of the shortage in the housing market. It is important to ensure that key information and research is collected using different methods of gathering data. Collecting relevant data will continue to develop my understanding of the housing Shortage in the UK and will overall develop the strength and success of the dissertation. The data collected will also suggest whether any previous attempts have been made to tackle this problem, and if so, are there any solutions that have already been put forward.
The opening chapter will focus on the time where non-traditional constructions methods were called for. Special attention is given to how the Government and Local Authorities acted at the time. This will help in developing an understanding of when Modern Methods where first used and the reasons why they came about, which will follow on into the next chapter.
Acknowledging the reasons for there use, and developing a detailed background on the housing sector, Chapter 3 analyses the state of the current housing market and the scale of shortage being experienced. Taking into account the Joseph Rowntree Foundation and its perceptions for the next twenty years, I will look into how many new homes are required to be built over the next coming years so as to rectify the current issue. This section will be implemented with the use of surveys, and data collected over the years that show the current yearly house building rate, and the prospective increase needed. I will also be taking into account the population increase due to migrant influx, higher number of divorce rate, higher life expectancy, and the birth rate. This information can be compared with the projected number of houses being built so that I can get an idea of possible key issues that are contributing to housing shortage.
In conclusion this dissertation will focus on comparing the findings between traditional and modern methods of construction, which in whole will then be applied to the housing Shortage and possible methods of rectifying the problem. As well as comparing these methods of construction, it is also necessary to ascertain whether or not house builders today are building at their optimum rate. Once this is identified, the potential advantages of the scheme can then be applied to the rate at which they could be working. This will identify the possible gains from using MMC, and whether or not a significant reduction in house shortage can be adapted from this approach to construction.
Two features dominate the history of housing in Britain in the 20th century: state intervention in the mass production of housing for the working class, and the prolific suburban expansion of towns and cities. To some extent, the two overlap, but both emerged from a situation at the beginning of the century, when housing provision and quality of life had failed to keep up with the frantic pace of Victorian industrial development.
Before the 1890s, the dire state of working-class housing had been improved by trusts and societies, who produced grim but safe and sanitary tenements, and there was little direct state intervention. The 1890 Housing Act empowered local authorities to purchase and demolish slum dwellings, and re-house their inhabitants.
At the end of the First World War, there was an acute housing shortage. Beginning with Lloyd George’s ‘Homes Fit for Heroes’ policy, four million new homes were built during the interwar period, 1.5 million of them directly by local councils or with the aid of state subsidy. During the war construction projects came to a halt, progressively worsening the housing shortage that had already existed before the war. The government already set plans to reconstruct and renovate sub-standard housing that where out dated, this and many other projects where all affected.
1919 brought in the “Town and Country Planning Act” which imposed obligation on local authorities to plan housing provision for their local towns. During the same period, given the situation of materials and skilled labour shortage, the local government board appointed a standardisation and new methods of construction committees to consider the question of standardisation in regard to materials, structural fitting and methods of construction (BRE, 1987). Bye-laws were also modified to allow the wider use of non traditional methods and materials (Ley, 2000). As well as this many other institutes, including British Research Satiation which has now become British Research Establishments, were also founded under the governments initiative to look for and trial new alternative materials and methods (Davenport, 1990). Between the First World War and Second World War various types of housing systems (prefab) were approved by the committees.
At first, pressure applied to local authorities to provide houses in such a short space of time, with no direct incentive to economies, would encourage the use of those new methods regardless of their costs. However, detailed arrangements of subsidies changed several times after 1921 (Cornish and Clark, 1989) and local authorities could no longer disregard cost factor when considering new developments. In addition, the materials and skilled labour for the traditional construction methods came back on stream sooner than the government initially expected. As a result, construction of houses using new methods had virtually ceased by 1928 (Yates, 2001). The main contribution of the attempt was, therefore, providing a small number of additional houses, probably less than 250,000, compared to the total 4,500,000 buildings erected between 1919 and 1938 (Ross, 2002).
The economic depression of the 1930s slowed the pace of house building, but the Second World War caused much greater damage: by 1945 nearly half a million homes had been destroyed, a quarter of a million were seriously damaged, and another three million suffered lesser damage. The immediate crisis was partly met by the rapid construction of 125,000 cheap pre-fabricated homes, but it was followed by a housing boom that equalled and exceeded that of the 1920s.
As previously discussed in Chapter 1, after the world wars had ended in the UK and between the early 1950’s and late 60’s the construction industry experienced an extreme shortage within the housing sector which led to a great need of re-building. Due to the extremities the war created, traditional build was not an efficient enough method, leading to the introduction and use of Mass Production Methods. Following the Second World War there was an even greater demand for the rapid construction of dwellings. In 1942, well before the war had ceased, the government had appointed the Burt Committee which brought together people from different parts of the building industry, government departments and building research station (Bullock, 2001). The aim of the committee was to seek alternative materials and methods of construction suitable for the building of houses and flats, having regard to efficiency, economy and build ability, to be able to make recommendations for the post-war program.
Post-War, the government planned new construction projects for the redevelopment of the housing sector, one of which was the development of 500,000 new dwellings with a completion time of 2 years (Davenport 1990). In the twelve years after the war, two and a half million new dwellings were constructed, three-quarters of them by local authorities. However, the construction of new housing was outpaced by the decay of existing housing stock. By 1963, 3 million people were still living in substandard housing, and official housing policy moved once again towards slum clearance and redevelopment.
Prefabricated housing has been used in the UK during periods of high demand, such as after the World Wars and during the slum clearances of the 1960s. In total about 1 million prefabricated homes were built during the 20th century, many of which were designed to be temporary. However, problems arose over the quality of building materials and poor workmanship, leading to negative public attitudes towards prefabrication. Nevertheless it has continued to be used in the UK for hospitals, hotels and schools, as well as for housing in other countries. Although this is the case, prefabrication must be used in greater quantities widely, merely to see if it can make a difference to the housing shortage currently being experienced within the UK. MMC is a new term intended to reflect technical improvements in prefabrication, encompassing a range of on and off-site construction methods.
The 20th century saw an enormous improvement in everyday housing conditions. Even in the early 21st century, local authorities are demolishing remaining high-rise blocks to make way for low-rise, high-density housing.
During the early 60’s the Government set up the national building agency in order to urge local authorities to take up industrial system building (Rovetz, 2001). Local Governments and the Ministry of Housing also held a series of conferences to encourage and support industrial prefabricated system building in the mid 60’s (Jones, 2000). Additionally under the Housing Subsidy Act 1956, the arrangement of subsidies was changed in order that local authorities could receive more subsidies per flat if they built higher blocks of flats. The arrangement of this progressive height subsidy was abolished in the 1969 Housing Act. By the end of the 60’s, both high-rise and industrialised system building lost ground in the construction industry.
The Housing Shortage at Present
“Britain is heading for a property shortage of more than a million homes by 2022 unless the current rate of house building is dramatically increased” according to reports from the Joseph Rowntree Foundation (JRF).
There are a series of short and long-term factors playing their part. The government wants to steady the UK’s runaway housing market, and end its boom and break housing cycles. House prices in the UK have almost doubled since 1995 and many people are now unable to get a footing onto the housing ladder. There is also a lack of affordable or social housing. This problem of high house prices is compounded by the shortage of houses being built. In 2001 house building fell to its lowest level since 1924 excluding the war years and its immediate aftermath. New housing accounts for less than 10% of residential property transactions in England and Wales compared to 40% in 1965.
The circumstances are likely to get worse before they get better. According to estimates, there are between 220,000 and 230,000 new households being formed annually (OPDM). Yet, only 165,000 homes were built in the year of 2002. If this was the case 5-6 years ago, then how is the housing shortage coping now? The population is increasing, while the average size of households is declining. This is caused by a range of demographic factors, such as increasing life expectancy, and more divorces. All in all, it adds more pressure to housing supply.
The report lays much of the blame at door of the UK’s planning authorities. Many who have tried and failed to obtain planning permission in recent years may echo the reports findings that the system is complex and takes an “unacceptably long” time. All in all, the report calculated that refusals for planning permissions in major housing developments increased from just 15% in 1996-1999 to 25% in 2002. The report also points out that if house building was to take-off in the UK skills shortages are likely to come into play. At present more than eight out of ten construction firms report skill shortages – even modest growth would require 70,000 new workers the report concludes. As a result thousands of badly needed homes are not being built. However, at this stage the report makes no recommendations as to how the planning process can be quickened up.
Housing shortages are set to become one of the most significant social issues of the next 20 years. Unless we act now, shortages will lead to overcrowding and homelessness. But they will also have knock-on effects for the whole of society, driving up house prices in areas of high demand, inhibiting economic growth and making it harder for good quality public services to be delivered.
Property insiders, politicians and young people looking for homes in Britain’s thriving cities are united on one point: the country is in the grip of a serious housing shortage. But opinions are widely divided when it comes to placing the blame for a situation where, according to the Joseph Rowntree Foundation, the number of homes built during each of the past five years has remained static at 154,000, with the number of low-cost “social” houses being built falling from 16,999 in 2000-2001 to 13,601 in 2002-2003. As the buck is passed between housing professionals, planners, builders and the government, first-time buyers are left desperately trying get on the property ladder.
“Slow planning is stifling. The government says councils should decide on most planning applications for 10 or more new houses within a maximum of eight weeks. But only 16% of decisions come in that time,” (House Builders Federation, HBF), which accuses councils in the north of England of deliberately preventing new homes from being built. The councils say that they already have enough new homes under construction, but the HBF disagrees.
The Barker Review of Housing Supply was commissioned by the chancellor, Gordon Brown, to discover why Britain, the world’s fourth wealthiest economy, has a housing shortage with property prices beyond the reach of many.
House building is at its lowest level since 1924; the gap between supply and demand widens by 60,000 annually — an average of 219,000 new households is created each year through longer lifespan, more solo-living from choice and an increasing divorce rate — and will exceed 1.1m in England by 2020; and the number of low-cost homes being built for housing association tenants is lower than at any time since 1995.
Meanwhile, the government targets for about 225,000 new homes each year until 2016. The HBF says there is excessive public consultation and claims councils want ever-higher cash payments to improve the infrastructure in return for planning permission. It also says planners want so much social housing that it threatens the economic viability of some developments.
Others blame the developers. The Council for the Protection of Rural England (CPRE) says Britain’s 15 largest house builders own enough empty land with planning permission to accommodate an estimated 300,000 new houses, also known as Land Banking. Using data from builders’ annual reports, the CPRE says this is 17.6% more than in 1998.
The council claims this indicates a deliberate slowdown on building in order to create a shortage and force up prices. “House builders” special pleading for more Greenfield land to build upon is not borne out by the facts. Far from there being a land shortage, too much countryside is still in the pipeline for development,” (CPRE).
The government has been careful not to criticise developers openly, but insists that planning decisions are getting quicker. It has given extra funds to planning departments to train new staff but accepts most council’s are missing deadlines, and despite being vocal in their criticism of public authorities, developers are doing well out of the housing shortage. The Barker report calculated that refusals for planning permissions in major housing developments increased from just 15% in 1996-1999 to 25% in 2002, this problem is still seen today, as planning officers become more stringent on the standards that need to be met.
So who should take the blame for our national housing shortage? Slow planning has a lot to answer for, but it’s too easy to blame everything on that. “Developers don’t do their homework on complicated Brownfield sites before making applications. Therefore planners come back and ask questions — that’s why there are lots of delays, which contributes to the yearly targets of house building not being met.
The Barker reports being launched draw on new estimates of the number of extra homes needed in the next 20 years. These are based on population projections published by the Government Actuary's Department at the end of last year and include revised figures on net inward migration to the UK - which is estimated at 135,000 people (43,000 households) a year, compared with 95,000 (30,000 households) a year previously anticipated.
Demand for extra homes in England is now estimated at around 210,000 properties a year, compared with average output from house builders and social housing providers of 154,000 extra homes a year over the past five years. The accumulating gap between demand and output points to a shortfall of 1.1 million homes in 20 years' time.
Although all regions are expected to see growth in the number of households, the reports note that the greatest pressure will continue to be felt in Southern England. Population changes resulting from internal migration from North to South will be relatively small compared with migration out of London placing added demands on housing in the rest of the South East. However, natural growth in the population and the level of international migration into London will mean continuing pressure on the capital's housing supply.
The effects of housing shortages in the South fall most heavily on the poorest families who cannot afford to buy and have no access to the oversubscribed rented accommodation provided by local authorities and housing associations. Recent figures show a sharp rise since 1996 in the number of homeless households housed by local authorities in temporary accommodation.
The working paper highlights a long-term decline since 1980 in the provision of subsidised, social housing and insists there can be no substitute for greater public investment in achieving a revival. It points out that both the subsidies to housing providers (such as Social Housing Grant to housing associations) and to individuals (such as Housing Benefit and Income Support for mortgage interest payments) have diminished in recent years.
The Land Inquiry report identifies an increased need for 'intermediate' housing markets in areas where property prices are high, to provide homes for lower and middle-income staff. It argues that schemes could be supported by land pooling arrangements similar to those operating in France and Germany, where landowners have incentives to make land collectively available for housing. Another innovation that could help to protect the value of land and ensure its availability when needed for social housing would be the introduction of Community Land Trusts that are widely used in the United States. The working paper, in addition, emphasises the scope for institutional investment in the private rented sector to generate new homes at market rents, particularly for single people.
“House price inflation in England and Wales dropped sharply in December, according to the Land Registry. Average prices fell by 0.4% in December, bringing the annual inflation rate down from 8.1% in November to 6.7% last month.”
If house prices fall, it will lead to a decline in household wealth, and an increase in negative equity. The effect on consumer confidence is likely to be more significant than for rising house prices. People expect rising house prices, therefore, if house prices fell it would be a real shock, and could adversely affect consumer spending. Therefore, falling house prices will lead to lower economic growth; It could cause a recession, a period of negative economic growth for 2 quarters. However, if house prices do fall, it will reduce inflationary pressure in the economy. Therefore the Bank of England will be able to cut interest rates; this reduction in interest rates may maintain positive economic growth. It is worth remembering that in 1991, house prices fell 15% and this was a major factor in the recession of 1991-92.
In 2002 around 183,000 houses were built in the UK, 138,000 were built in England, though taking account of demolitions and conversions, net additions totalled 134,000, a 0.6 percent increase in the stock. Official projections of household formation specify that the number of households in England is expected to increase by an average of 155,000 a year over the 1996 to 2021 period.
Chart 1.3 sets out these projections. Over the ten years to 2000 household formation is estimated to have been an average 196,000 households a year. Increases in the number of households are in part the result of higher household formation rates, where people are less likely to be part of a couple. But with rising incomes there is no certainty that smaller households will necessarily demand smaller houses as they can afford more.
(Source: Barker Review Report, 2003)
Currently, most house builders do not see the commercial sense in a rapid expansion in OSM or MMC. Indeed, there may be risks, as well as opportunities, from going down this route. Dedicated technologies may require specifically skilled labour. When demand increases, production costs are likely to rise more steeply than with more flexible, but less sophisticated techniques. As Table 6.2 shows, on some measures, UK house building costs have risen less steeply than a number of major competitors over the past decade. This suggests to some observers that the organisation of the UK house building industry may be relatively efficient in controlling construction costs and that growing skill shortages might be less of a threat to increasing output than has been feared
(Source: Barker Review Report, 2003)
UK house builders have avoided using proprietary OSM schemes. As a consequence many UK house builders adopting OSM have set up their own joint venture companies, in order to control the production process. This increases the problems of economies of scale, as each house builder must achieve sufficient scale to make their own processes commercially viable.
Increasing volumes, through the increase in house building set out in the Report, may well make OSM or MMC more attractive propositions. Further consolidation in the industry, should this occur, and hence increasing scale, could make OSM viable for some house builders. Over time, it is likely that the commercial pressures will change and the economic rationale for MMC and OSM will become clearer. As a result, the Review does not consider that direct, ongoing financial incentives for MMC are warranted. But it is important that the industry is ready to take up this opportunity, as and when it arises.
The industry, therefore, should work with all of its stakeholders to ensure that any barriers to the adoption of OSM and MMC are removed. The Review supports the continuing funding of OSM and MMC demonstration projects by ODPM and the Department of Trade and Industry, which help to overcome informational market failures, by identifying the benefits of such techniques and establishing best practice. For example, it is Government policy that 25 per cent of new build in the RSL sector should use MMC/OSM, and often applications for projects using OSM or MMC are considered more favourably. It is also reasonable to expect, that with continuing improvements in efficiency and through developments in construction techniques, the industry should be able to reduce construction times and therefore speed up the release of completed homes.
The House Builders Federation, in conjunction with NHBC, and other interested parties, should develop a strategy to address barriers to modern methods of construction. This strategy should be developed to fit alongside existing initiatives, working closely with Government to identify further measures that can be taken. A range of approaches should be explored, in particular actions by industry, and changes to NHBC policy and practice, as well as representations to Government on areas such as changes to building regulations.
Housing has a huge impact on individuals’ quality of life. Being adequately housed, and living in a pleasant environment is fundamental to well-being. The housing market also has a major effect on the economy. An inadequate housing supply, or a poorly-functioning housing market, constrains economic growth. Demand for housing in the UK continues to grow. Population growth, changing patterns of household formation and rising incomes are all fuelling demand for homes, yet in 2001 the construction of new houses fell to its lowest level since the second world war. Over the ten years to 2002, output of new homes was 12.5 per cent lower than for the previous ten years (Fig A.1). There is considerable evidence that a shortage of housing exists in the UK, but the nature of this shortage is complex
(Source: Barker Review Report, 2003)
The above figure suggests that the UK has been under delivering in terms of house building per year. As the years have gone by it seems that numbers have fallen considerably, ever worsening the condition of the housing shortage.
Looking at statistics relating to new home completions for 2007, they seemed to show little change on the previous year, according to the statistics released by NHBC. There were 186,500 new homes completed by NHBC registered builders in the UK last year, compared to 184.960 in 2006. Of that total, 1257,500 related to private sector activity, showing a one percent decrease on 2006.
Imtiaz Farookhi, NHBC Chief Executive said: “Overall, new home completions increased by7 just one per cent in 2007 compared to the previous year and currently key housing market indicators, such as ability to buy, reservations and mortgage approvals show a downward trend. In addition, house builders face a multitude of other challenges, including meeting government targets to build zero carbon homes and increase housing supply, alongside ongoing uncertainty in the UK housing market amid fears of a recession in the US.
More investment in the clean up of Brownfield sites is needed if the government is to fill the gaps in the UK Property Market, the Town and Country Planning Association has claimed. According to the TCPA, the existence of Brownfield sites in area where demand for housing is already high often offers a ready made solution for developers.
Furthermore construction of homes on such sites is vital if the government is to meet targets of 60 percent of new housing on Brownfield sites by the end of 2008 (ODPM).
The government must ensure that enough money is spent on these types of land, in order to clean up contamination and Brownfield sites to turn them into the kinds of places where people would want to live. Although this is the case, it is inevitable that green field sites will be increasingly used, as not all sites will be able to have sufficient cleaning to use for construction sites. It is obvious that there will always be a need for green field development if we are to meet the increasing demand of new homes.
In recent years applications to start new homes in the UK have decreased by 22 per cent year-on-year from December to February (NHBC, 2007). There were a total of around 35,800applications to start new homes around this period, down from 45,600 in the previous year. It seem that planners are being too stringent on there requirements, and as described previously in the report this is contributing to the shortfall of houses in the UK.
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