The second installment of our series focusing on London’s role in UK recovery concentrates on housing delivery. The ongoing pandemic has been the cause of great uncertainty, and as we head towards the end of the second quarter, it is inevitable that the UK, alongside the majority of the world, will fall into a recession. During the last recession the housebuilding market plummeted, causing lasting damage. In London, new build housing delivery fell by approximately half from a peak of close to 25,000 homes having been delivered in 08/09, to a low of 16,000 homes in 2010/11. The recovery was slow and it took 7 years for new build housing delivery to reach pre-recession supply levels.
There are varying schools of thought about how the economy might recover this time around. What we do know is that the delivery of new housing will play a critical part; after all, the construction sector accounts for approximately 330,000 jobs across London and approximately 5% of London’s economic output.
The GLA Covid-19 Housing Delivery Taskforce
In response to this, the GLA set up ‘The Covid-19 Housing Delivery Taskforce’ in late April, chaired by Deputy Mayor for Housing and Residential Development, Tom Copley. The aim of the taskforce is to consider how the GLA can assist the housebuilding sector and ensure that it not only recovers, but exceeds performance prior to the pandemic. This is important in the context that City Hall have ambitious housing targets to meet - 52,000 new homes per year within the draft New London Plan, 20,000 or so in excess of most recently reported delivery rates (FY2018).
The first example of direct intervention as a result of this working group has been seen with the GLA having recently agreed a £50 million loan facility with developer Mount Anvil to facilitate the acceleration of their housing delivery programme. The funding will be used in part to deliver the current pipeline of c.2,000 homes, but also one that can be used to invest in new development opportunities. As part of the agreement, Mount Anvil will deliver 1,400 new homes by March 2025, of which at least 50% will be delivered as affordable. There are other examples of public sector intervention as well, most recently with Homes England having agreed to provide a loan to be used towards the delivery of key infrastructure at three strategic development sites across London which will deliver in excess of 20,000 homes.
Market sentiment and options
From our discussions with developers, whilst there has been good uptick in demand for housing following the lifting of restrictions it is apparent that their primary concern is cashflow. These interventions are good examples of mitigating cash flow risk for developers and encouraging them to proceed with the delivery of housing.
The following alternative interventions and options could also be considered in order to encourage the delivery of new housing by the private sector:
- Extension to the recently proposed deferral of CIL payments, available for small and medium sized developers (turnovers of up £45 million). Could an increased scope in the deferral scheme help get larger schemes off the ground? These are an added upfront cost to a scheme and can be in the millions in some instances.
- Will extending the lifetime of planning permission aid delivery – our colleague, Sam Stackhouse provides his thoughts on the matter.
- The current Help to Buy scheme is also due to end in April 2021. With the majority of all new build sales across London coming from Help to Buy, an extension to the scheme would be welcomed by housebuilders and developers alike and this is likely to provide more confidence in the exit position on any development schemes.
- Direct national or local Government intervention to mitigate scheme exit risk, for example through forward purchasing units to serve wider purpose/need (e.g. affordable housing).
- Flexibility to renegotiate planning viability/S106 deals where there is a clear case that things have moved on. Our colleague, Will Seamer provides his thoughts on a recent high court decision.
Housing delivery across London has been falling short against delivery targets for some time. With increased housing targets and the uncertainty within the market at present, the public sector will play a crucial role in the delivery of new homes. The interventions that have been made are a start and a certainly of way of unlocking development but more is required. We wait and see what further measures are taken.