The impact of Covid-19 on the housing market is evident with new starts, completions and the number of homes receiving planning permission all down compared to 12 month previous. This market slow down combined with public spending that is biased towards the south, imminent changes to how Section106 contributions work, and changes to building regulations are all challenges that need to be overcome.
Mark Doherty, Managing Director of Identity Consult discusses the challenges facing delivery of new homes across the north.
"Whilst there has been an inevitable slowdown in the housing market as a result of Covid-19 there are positive signs that the market in the north will bounce back strongly. The impact of the stamp duty holiday has been positive albeit short term. We are also seeing the type of product change, with purchasers wanting access to garden space, a home office, and better networking as being more of a priority than previously."
Recent research from the RICS reported that 63% of surveyors and estate agents reported an increase in buyer interest over the last month, boosted by the stamp duty holiday, although it will be interesting to see how the market responds when the holiday expires at the end of March 2021.Whilst evidence that demand remains high, if not higher than pre Covid-19 levels, it does however remain price sensitive with the availability of higher loan to value mortgages having significantly reduced and a higher proportion of demand being from those already on the property ladder rather than first time buyers.
Mark Doherty also argued that "Whilst there has been pledges by the government to invest £12bn in the delivery of 180,000 new homes over the next 5 years, there remains a significant divide between the availability of public funding in the north for the delivery of affordable homes, with the north typically only receiving 20% of housing funding across the UK. This was recently demonstrated with the northern Local Authorities only receiving a very small percentage of the £3.4bn available under the housing infrastructure fund. The north faces its own unique challenges which don't necessarily accord with the government principles of directing funding where it can demonstrate land value uplift. A new strategy is required that recognises the impact on population and the health and wellbeing of poor quality housing."
To add to these challenges the Government are set to implement new changes to Part of the Building Regulations in 2020 that could put significant pressure on construction costs. The Governments Planning White Paper also suggests that the existing community infrastructure levy (CIL) and Section 106 planning obligations systems could be merged to create a new 'Infrastructure Levy', with any payments due under the new system being for developments over 50 units. This could impact the delivery of affordable homes by up to 14%.
Mark Graham, Associate at Identity Consult added "To meet the Governments carbon reduction targets they are looking at introducing changes to part L and F of the building regulation in late 2020 through the Future Homes standard. Identity Consult have been undertaking research to understand this impact on our clients which could be up to 10% of traditional new build costs.”
Building Regulations Part L (fuel and power) and Part F (ventilation) are currently under review and expected to be updated next year. On previous significant changes to Building Regulations there were transitional arrangements put in place to determine when a development should use the latest version of Building Regulations and agree the cut-off date for the previous version, however the current consultation is considering ignoring the transitional arrangement timeframe, which means any changes when announced, could apply to affordable homes with immediate effect.
The details of these changes have yet to be released, but it is believed that the Target Emission Rate could be enhanced by more than a third. In addition to this, U-Value targets are expected to be stricter and improved requirements on air quality and overheating could be introduced, which could all contribute to increased build costs. Furthermore, it is the Government’s ambition that all new build homes will no longer be reliant on the gas grid from 2025, as a result changes in Building Regulations will seek to introduce standards to help realise this ambition.
The majority of energy consumption within a building is from the result of heating and hot water use, therefore in order to satisfy the changes in Part L Building Regulations it is thought that there will be a push towards renewable, low carbon alternatives. Air Source Heat Pumps for example are an alternative renewable heating technology that several of our existing clients are either implementing or considering to use on future schemes. They deliver efficient heating and hot water all year round and can offer significant cost savings when compared to traditional fossil fuel boilers or direct electric heaters. Greater savings can be achieved when combined with Solar PV or Solar Thermal and are classed as a zero carbon option if used with a 100% renewable electricity tariff.
Mark Graham summarised "This is going to put significant pressure on Registered Providers, particularly in relation to the retro fitting of existing properties. A separate Government funding stream is likely to be required to assist Registered Providers and Local Authorities, something akin to the Decent Homes programme funding."
Identity Consult are confident that the north market will bounce back strongly and are well placed as a business to help their housing Clients navigate these challenges. Identity Consult has also recently launched IC Digital with the aim to help clients embrace digital construction, gaining better efficiency in terms of cost and programme which can help to offset some of the market challenges.