More competition needed to break big housebuilders’ grip on housing market, says MPs’ report

If the Government wants to fix the broken housing market then it must foster greater competition and end the dominance of the big housebuilders, a new report has argued.

The report into housebuilding capacity conducted by the Communities & Local Government Select Committee of MPs has called on the Government to do more to support small and medium sized builders to challenge the hold the volume housebuilders have over the market.

What’s more, Government must ensure that local authorities have the tools they need to make an effective contribution to solving the housing crisis.

According to the report, the eight largest firms build more than half of all new homes, prompting the committee’s call for a more competitive market, with a large number of companies of different sizes. Furthermore, the committee recommended improving access to land and finance for smaller builders and says Government should reduce the risk for builders by preparing sites for development by providing infrastructure and planning permissions.

Local authorities and housing associations also need to be building more, the committee added. This will help protect the sector against economic downturns, but the committee noted this has “almost ceased”. The MPs say borrowing caps on councils’ Housing Revenue Accounts are limiting their ability to build and should be raised or, in the areas where housing affordability is at its worst, removed.

The need for more rental homes, greater assistance for modern methods of construction and improvements in further education to address the growing skills gap, described by the committee as the biggest challenge facing the sector, are also highlighted in the report.

"The housing market is broken; we are simply not building enough homes,” said Clive Betts MP, chair of the CLG Committee. “Smaller builders are in decline and the sector is over reliant on an alarmingly small number of high volume developers, driven by commercial self-interest and with little incentive to build any quicker. If we are to build the homes that the country so desperately needs, for sale and for rent, then this dominance must end.

“A successful housing market is a competitive one and Government should support smaller developers if it wants to increase the housing stock. This includes earmarking land, improving access to finance and reducing risk by proactively preparing sites for development. Local authorities have a key role to play but have not been given the tools they to make an effective contribution to solving this crisis.

“Innovation must also be encouraged and we need to finally get to grips with the major challenge of ensuring that the industry has a much-needed supply of skilled workers, without whom this country’s housing crisis cannot be addressed. The Government’s promises are encouraging, but their implementation must be closely scrutinised."

The committee found that smaller builders struggle to access land for development as local plans predominately earmark large sites only suitable for volume builders. Consequently, the committee said it welcomes plans in the Housing White Paper to encourage councils to identify smaller sites and sub-divide larger ones – but ministers must make clear what powers will be available to ensure this happens, the committee added.

The report also identified difficulties in accessing finance for small and medium builders, which are seen as a higher risk. The Government should look to learn lessons from the German model of support for SME companies, which uses a state-owned development bank to protect lenders from liability, while providing low rates to customers.

When it comes to modern methods of construction, the committee urged the Government to play a “more active role” in supporting its growth. This includes sponsoring a single, recognised quality assurance mark to give lenders, builders and consumers’ confidence. The committee also champions custom and self-build homes and said an approach seen in the Netherlands, where people self-commission homes on publicly-owned land, should be considered in the UK.

Responding to the report, the chief executive of consultancy Cast, author of the Government-commissioned Farmer Review, Mark Farmer, said the Committee’s conclusion confirm the housing market is broken and to fix it a “robust, innovative and productive construction industry” is a must.

“What is noteworthy in the recommendations is clear select committee recognition that we need more diversity in the market, both in terms of tenure and the delivery models employed, and this must only be a good thing in terms of the need for some policy stability beyond 8 June,” he added.

“There is explicit support for the role in increased delivery of housing associations, the institutional build to rent sector and the application of modern construction techniques alongside a fit for purpose skills and training regime that is aligned with industry needs. I particularly welcome the endorsement and indeed increased urgency given to the current Government's intention to actively intervene in the market to promote construction innovation and develop capacity in the emerging pre-manufacturing sector.

“In this regard, the recommendations include a request for specific progress reports on the Accelerated Construction Programme and also urge government to back a single quality assurance scheme for offsite construction which makes it easier to fund and supports mainstream acceptability. Interestingly the select committee also highlight the need for the construction industry's reliance on migrant labour to be recognised in the upcoming Brexit negotiations in order to make sure that the deal Britain gets doesn’t worsen the trends already found in the industry.

If the recommendations set out in this document aren’t acted upon, homebuilding and the construction industry in the UK will continue to deteriorate, impacting economic growth at a time when we need a solid platform for domestic industrial performance. The findings only reiterate my previous challenge to both government and the construction industry to modernise the home building policy framework and the basic delivery approaches used."

Michael Holmes, chair of the National Custom & Self-Build Association (NaCSBA), said: “Custom and self-build has the potential to deliver 40-50,000 new homes a year in England by 2030, extending choice, affordability, sustainability and diversity of supply. But this will only happen with continued Government support to establish owner commissioned housing as a mainstream alternative model of delivery.

"The capacity report sets out the main challenges faced by potential self- and custom builders, which are much bigger than those experienced by small and medium sized builders. For example, if you can’t afford a significant deposit, you are probably excluded from the custom and self-build sector. Another significant development is that the Committee is requesting an update on solutions for accessing finance within 12 months.”

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