1. The legacy of Help to Buy

Despite a 74% increase in delivery in the past five years, the development industry remains under pressure to build more homes. Currently, annual delivery is 217,000 homes, yet in the 2017 autumn budget, the Government stated its ambition for housebuilding to reach 300,000 homes per year. To achieve this, the development industry has to go beyond existing delivery models.

Help to Buy is underpinning current delivery. During 2017, new build sales represented 13.5% of all transactions. In the decade before the scheme launched, new build sales averaged 11% of all transactions, but Help to Buy has pushed and maintained new homes sales in a slowing sales market.

It is questionable just how much further this relationship can be pushed, particularly with doubts over the scheme’s future after 2021. In a market characterised by a lower level of transactions, it will also be hard to increase output if the focus remains on homes for open-market sale.

As affordability becomes stretched and fewer households can buy or trade up, there is limited capacity for new housing stock to be absorbed by the for-sale market. Instead, development needs to reflect the market’s increasingly diverse needs.

The future for Help to Buy

The main unresolved question for the development industry will be the form Help to Buy takes after its current end date in 2021. The equity loan has helped fund more than 160,000 purchases in England since its launch in 2013. Nationally, Help to Buy has supported 44% of new build transactions in 2017/18, but its use has varied across locations, so the impact of a change or withdrawal of the scheme will be mixed.

Whether the scheme stops after 2021, or continues in a more targeted form, the key for developers is to have clarity as soon as possible, so they can develop appropriate strategies for sites that are coming through the planning pipeline.

The ability to deliver a diverse product including multiple tenures is likely to be the best way to soften the impact of any policy changes.

2. Diversifying to meet need

Over the past year, the Letwin Review has been investigating ways to increase build-out rates. It also concluded that diversity of housing is a barrier to high build-out rates, in terms of size and specification. Pricing also needs to compete with the local secondhand market.

Sir Oliver Letwin has suggested that to increase build-out rates, there needs to be more diversity of tenure to tap into demand in other parts of the market. He has concluded that the demand for affordable housing – particularly social rent – is ‘virtually unlimited’.

Similarly, Sir Oliver has identified that the demand for private rented accommodation is a different market from open-market sale. Therefore, the delivery of private rented homes alongside those for market sale could accelerate absorption rates and – with them – build-out rates.

We estimate that additional build to rent completions will total 7,000 this year, with the potential to rise to 15,000 a year by 2021. This expansion includes more sites in suburban areas with access to employment and those demographic groups who look to rent.

The final recommendations of the Letwin Review are now imminent. A key question will be just how an expansion of affordable housing can be funded. The Government’s new National Planning Policy Framework is designed to encourage realistically ambitious setting of policy in this respect and, if it is done properly, it should be able to deliver more affordable housing.

But the Review does acknowledge that – under the current models of delivery – the rate of completion of affordable housing is limited by the need for cross subsidy from open-market sales on the rest of the site. We have previously estimated sub-market housing need in England at 100,000 homes per year, which would require at least £7 billion of grant funding per year. This is well above the £9 billion total allocated for the whole of 2016-2021.

3. Identifying the capacity to expand

The expansion in housebuilding over the past five years has been driven mainly by the major housebuilders. Output by housebuilders has risen 74% since 2013, and developers who deliver more than 500 homes a year now account for 77% of all new home starts in England registered with the National House Building Council. However, we anticipate the strongest rate of growth in output over the next five years is likely to come from smaller housebuilders, housing associations and local authorities.

Small and medium housebuilders have struggled since the global financial crisis, but with increasing government support, particularly via the Home Building Fund, they should find access to finance to be less of an obstacle. The Letwin Review has also called for more opportunities for smaller developers to partner with large housebuilders on sites, to deliver more diverse product.

Currently, housing associations build 17% of new homes, and have ambitions to increase output. The 50 largest housing associations plan to build 43% more homes in 2020/21 than they did in 2016/17, reaching 50,000 completions. The increased scale of funding available to these organisations via partnerships with Homes England will also help the sector meet demand for alternative tenures, such as sub-market housing.

The recent removal of the HRA cap on borrowing will also allow local authorities to expand their development programmes. Local authority completions currently stand at just 2,000 per year. But the relaxation of borrowing rules provides an extra £10-£15 billion of funding that will create capacity for an extra 15,000 homes across England each year.

For many local authorities, the main obstacle will be building up their construction capacity. Collaboration with the private sector will be essential to fully unlock this potential.