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MPs call for an end to dominance of big home builders

Wednesday 03 May 2017

In its latest report, the Communities and Local Government Committee concluded that the dominance of large volume homebuilders must be reduced to help fix the broken housing market.

The report notes that more than half of all new homes are built by the eight largest firms, and the Committee has called for a more competitive market, with a large number of companies of different sizes.

A quarter of all new homes in 2015 were built by Taylor Wimpey, Persimmon, and Barratt alone, and the lack of competition is constraining both supply and innovation within the sector. The market share for small builders has plummeted from 28 per cent to just 12 per cent between 2008 and 2015, according to government figures, as the financial crisis wiped out firms in the middle market.

Support for small and medium builders should be a priority in order to protect the sector against economic downturn. Improved access to land and finance and a reduction in risk for builders by preparing sites for development by providing infrastructure and planning permissions, have been recommended.

The Committee has called for increased building by local authorities and housing associations, and documented that local authorities must have the tools they need to make an effective contribution to solving the housing crisis.

Whilst the Committee recognises that some local authorities may be wary of increasing borrowing, in light of the severity of the housing crisis, it is recommend that all Housing Revenue Accounts (HRA) borrowing caps should be raised and in some cases removed, where housing affordability is at its worst.

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.

Small and medium builders

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

The report identifies difficulties in accessing finance for small and medium builders, which are seen as 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.

Methods of Modern Construction and custom and self-build

The Committee urges the Government to take a more active role in supporting the growth of Modern Methods of Construction. 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 says an approach seen in the Netherlands, where people self-commission homes on publicly-owned land, should be considered in the UK.

Skills gap

The report points to the growing skills crisis and calls for concrete proposals from Government, particularly with regards to improving further education routes into the construction industry. The importance of workers from the European Union is also raised by the Committee, which warns that following the Brexit vote, large numbers of the already-stretched workforce face an uncertain future.

Green Belt

The Committee has raised concerns that the Government's planning reform proposals in the Housing White Paper effectively weakens protections for the green belts as ‘exceptional circumstances' could now include any local authority not building enough homes. The Committee has called for clearer guidelines to be published by Government.

Development land market

The development land market is so competitive that developers pay inflated prices and seek to recover costs by increasing density, reducing affordable housing and building slowly to keep demand high. The Committee’s successor should examine the case for public intervention.

Clive Betts MP, Chair of the Communities and Local Government Committee, said:

"The housing market is broken, we are simply not building enough homes. 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."