Olympic Way

'Housing? . . . Off the back of a lorry!

As I write I am preparing for forthcoming conferences at Brighton and, of course, MIPIM. I must admit that I really enjoy these events. For a housing ‘anorak’ like me, spending time with likeminded people in great locations with alcohol to fuel to debate is a excellent way to spend the time and, if done well, excellent for business too.

This year I have the added impetus of chairing a group for the Housing Forum whose remit is ‘The future of funding for social housing post 2015′ but also elsewhere, my working day continues its focus on the enigma of Market Rent [PRS], a chimera for the past 5 years – but one with signs of imminent physical presence. I am choosing to link the two purposes as there are some fundamentals in both which point to common stumbling blocks, cost of product and competition from the sale sector.

There is, in London and the South East at least, a real feeling that the wheels of housing machine are beginning to turn. Housebuilder results are pleasing the stock market and the AHP deadline of March 2015 has prompted Housing Associations to get going with their programmes. Meanwhile the first adopters of market rent are advertising new and proposed developments with the prospect of more, supported by the governments ‘Build to Rent fund’.  These are promising signs albeit we are coming from a very low base.

The NHBC reported in January that the rolling 12 months figures to the end of November 2012 show 96,150 starts, 11.5% lower than the 12 months to November 2011. I am definitely not saying we will be delivering the 230,000 homes a year we need anytime soon  but the feeling of activity is very welcome, even if confined to one part of the country.

However, even at this very early stage,  what is already apparent is that the predominant focus of the majority of housing providers and their funders, be it subsidy, debt or equity is on those who can afford 60% to 80% of market rent, market rent or who can access mortgages. Meanwhile the overseas investor looms large as a key purchaser of new product. And so, in all this bright news, there continues to be an underlying ‘elephant in the room’ regarding provision of housing for those who cannot afford these homes either through economic situation [Low income or poverty] or the stage in their lives [Timing].

I have previously touched on this with previous blogs Hiding from the rent man [21 June 2012] and Back to the future with 5% Philanthropy[14 July 2012] and it would appear the issues of lack of provision for this group are accelerating as Welfare Reform kicks in and the provision of homes focuses on the more economically established consumer.

Now there is a new component in the mix. In recent meetings with clients in the construction sector I have noted that the conversation turns very quickly to how busy they are, how subcontractor prices are rapidly increasing and how they are now ‘turning work away’ or pricing in the expectation of a rising market. I have also seen the land market change perceptibly in the last few months as anticipation of higher values creeps in. This is not good news for the provision of low cost housing or indeed providers of market rent, both of whom need a ‘buffer’ to create viability.

If the traditional buffers of subsidy, distressed or free land or cheap finance is not available, construction price inflation will make competition with the sale sector for sites all the harder. A key part of the focus of the future will necessarily be, I believe, how we  can close the gap between the cost of construction in the Social Housing sector and indeed the emerging Market Rental sector with that enjoyed by our housebuilders. 

At HTA, where we work cross sector, we often debate how our private sector clients can build at £65-85 per sq ft while Housing Associations pay £100-£160 per sq ft for a similar product.  Supply chains, standards and long term maintenance requirements clearly play a part but there seems to be some potential in finding ways to close the gap.

It seems a good moment to return to the virtues of ‘off site manufacture’.

I can hear some howls of ‘heard it all before’ but bear with me. HTA are just completing an excellent mixed use development with our client Donban at Olympic Way, next to Wembley Stadium.  A 240 room hotel and some 150 residential units, including a 20 storey tower has been constructed to the highest quality in, frankly, an amazing timescale. Modules were manufactured in Bedford and bought down to the site on the back of a truck in the dead of night with up to 9 craned in to place in a day.

The skilled workforce work in dry, warm conditions and the site is clean, well organised and safe. The building itself is gratifyingly well designed and certainly does not look like the stack of boxes we might associate with factory made houses of the past. Speed, certainty of cost, time and quality are all there to be seen and these benefits speak directly to the rental sector.

Current costs of what is still a niche product [£140 per sq ft] can be tackled by volume. Certainly the exposure of traditional construction to a rising market may also improve competitiveness in the short term. Indeed if we do see an upturn in supply, now is the time to plan for avoiding capacity issues and promote a better use of factory housing than that which bedevilled social housing in the past.

It could be that providers of Social and Market Rent both see real potential in getting behind homes ‘off the back of a lorry’ as big part of the future.