Government housing targets in turmoil
The government's housing targets have been jeopardised by turmoil in the housing market - but is there still a chance they will be met? Chris O'Toole examines Labour's predicament.
Grand designs
Gordon Brown has made addressing the UK housing 'crisis' a personal campaign.
No sooner had he assumed the leadership of his party and the role of prime minister, in June 2007, than announcements began to be made outlining ambitious plans to tackle the problem head on.
The perception centred on a shortage of supply, with the government promising two million new homes by 2016 to combat the problem. In addition, a further one million, carbon-neutral, homes were to be added in the following four years - bringing the total to three million new properties by 2020.
It was also announced all commercial property was to be carbon neutral by 2019 - a development which caused equal consternation as disbelief among industry insiders.
"Putting affordable housing within the reach of not just the few, but the many, is vital both to meeting individual aspirations and to securing a better future for the country," Mr Brown told MPs on July 11th, 2007.
A major part of the plans revolved around public sector land being returned to use for house-building.
More than 550 government-owned sites remain under consideration to make way for 100,000 new homes, while councils are under pressure to give up brownfield land with space for another 60,000.
Councils meeting targets are to be rewarded with extra funds.
Ten eco-towns have also been pledged as part of the mix of new-build homes, with 15 sites still under consideration.
Grim realities
However, these grandiose plans have been ruthlessly exposed in the wake of the global liquidity crisis, which has prompted a dramatic correction in UK house prices.
Research from Nationwide shows house prices are now falling at their fastest rate in 17 years - down 2.5 per cent in May, and 4.4 per cent year-on-year.
The Council of Mortgage Lenders (CML) also finds mortgage lending is in sharp decline, with lending down 24 per cent on the previous year in March.
Consumers have simply been unable to source affordable finance to facilitate house purchases during a time of restricted mortgage supply, severely limiting demand for property.
This in turn has impacted negatively on housebuilders, with the country's two largest housebuilders - George Wimpey and Taylor Wilson - having seen sharp falls in their share prices.
While shares in Barratt were trading for over 1,200 pence a year ago, they have now fallen to just 90 pence per share, with Wimpey seeing a similar decline.
Persimmon Homes also confirmed earlier this year it was to temporarily halt construction on all new projects.
The turbulence has led to the number of new-build property starts contracting rapidly, with research from Construction Products Association (CPA) finding new starts are now at the lowest level for 63 years.
Furthermore, the Office for National Statistics (ONS) finds orders for public and private housing fell by 17 per cent in April, when compared to a year earlier.
So what now.?
In the view of the Home Builders Federation (HBF), the government home building targets are being "increasingly jeopardised" and the longer the present malady is allowed to persist, the more difficult the task will become.
While the government initially encouraged the industry to ramp up production capacity in order to meet its "challenging" objectives - this capability is now being allowed to atrophy while the market undergoes a price correction.
It is feared a third of those involved in the construction industry - from suppliers and labourers, through the developers and planners - could be facing unemployment during the present slump.
If this is the case, it could take years for the decline to be reversed, and production potential to return to its present level.
With wholesale funds restricted, buyers are unable to secure mortgage finance from lenders, restricting demand and reducing the economic incentive for developers to build new homes.
Curtailed demand also encourages developers to lower prices, with the ambition of securing buyers. This is creating an industry-wide decline in average prices for new-build property, as others are forced to follow suit.
Finally, it is also argued by the HBF, that the government may be restricting building capacity through adverse legislation.
Developers are presently forced to incorporate a percentage of social housing in developments, meet increasing (and geographically diverse) ecological targets and meet strict planning goals during the construction of new properties.
These demands again reduce the financial viability of schemes and discourage development of new homes - making achievement of government targets the all the more unlikely.
Furthermore, the Federation of Master Builders (FMB) points to another challenge facing the industry.
While the government has pledged to construct two million new homes over the next eight years, numbers of new-build properties entering the market are currently in decline.
One factor behind this trend is the potential shortage of skilled labourers in the market - limiting construction potential.
While international migration is presently filling the skills gap in the UK market, such workers - especially those from eastern Europe - are increasingly seeking the return trip to their domestic markets.
In the medium term this could severely impair the industry in meeting government targets, unable as they are to recruit the necessary labour.
However, there appears to be little desire to rectify the situation.
UK firms are reticent to employ trainee workers; fearing potential investment will be lost with employees leaving organisations once training is complete.
This is further exacerbating the skills gap, with fewer than 1,000 specialist trainees employed in the course of the last year.
This, along with the present financial downturn, poses a strong and sustained threat to the government's targets.
In response, the FMB argues derelict or dilapidated properties ought to be renovated in order to bring housing stock back onto the market.
No hope?
The government targets, then, seem unachievable. With each fall in house prices the target becomes all the more unlikely - with a reduction in the financial incentive to build.
However, as the HBF argues, the three million home target was introduced for a reason. There is a shortage of property in the UK.
"We have been under supplying houses that are needed and the constraint on supply we are now seeing is only adding to pent up demand," explained HBF spokesman, Steve Turner.
"So the long term prospects for home builders are good despite the current situation."
The capacity does exist in the UK to build three million homes within the deadline; it is now a matter for the government to act in order to ensure their own targets are met.
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