25,000 new council homes: what does the PM’s speech mean for the building industry?

Published:  09 October, 2017

Here, Kenzie Group analyse the PM’s speech she made during the conservative party’s conference and what 25,000 new council homes may mean for the UK building industry.

Theresa May almost made her position as PM untenable at the conservative party’s conference. It was a farce for her, for the conservative party, and for politics in general. But through the noise and hullabaloo, there was a ray of light for the building industry, including building merchants.

Lost in all the clamor was the conservatives promise to put the spotlight back on social housing with a commitment to build an additional 25,000 “council homes” around the UK. A welcome boost for parts of the community in desperate need of low-cost housing, but equally welcome for builders, developers and building merchants alike. A solid promise, to build 25,000 in two years, starting 2019.

But, a word of caution. For the last 5 or 6 years, departments like the Ministry of Justice and Department of Health have been selling off parcels of land to help balance their books. Often sold to the general public as “for low-cost housing”.

The reality was, without the relevant experience and legal framework in place, and was bought and used for everything but social housing, which often has lower profit margins than other developments. In many situations, and was bought at below market value only to be put back on the market, with planning permission, at full market value. Savvy developers and businessmen making money on the government’s naivety.

There is an obvious disparity between what central government promise and what branches of government and local governments ultimately do, but having more land made available for development, often in prime locations, can only be seen as a positive for the building community.

The withdrawal of public sector housing has left the British public with a deficit of affordable homes. It’s also been a hurdle the building community has had to overcome. Historically, local governments were one of the biggest clients in the UK building industry but this has been winding down since the 1980s leaving thousands of builders and developers in limbo.

However, this has been starting to change. Joe Bond of Kenzie Group recently said: “ over 35% of local councils have started to directly develop their own social housing or have set up partnerships or joint ventures do so”.

With the PM’s announcement and the conservative party’s commitment to the pledge, that trend is set to continue. Once again, the building community will get to play an important role in the local community by developing low-cost, affordable housing that is going to help bring families above the poverty line.

But it comes with a warning . According to Joe Bond, Managing director of Kenzie Group “When working with local governments, tenders are often won by the lowest bidder. You have to make sure you have your numbers right because profit margins are tight. Local governments make terrible clients. Ensure you contract include provision for delays and really get specific with formats for issuing delays. Don’t give them any wriggle room”.

Current statistics suggest that only 1 in 5 new homes built is for low-cost housing, there’s just more profit margin in other builds. And to date, only 6% are social housing. But if the conservative party follow through with their commitment to building 25,000 new homes in 2 years, the building landscape is about to see another large shift.

Whether it means an expansion of the industry, with an additional 25,000 homes being built on top of the 40,000 new homes built each year, or just a shift in the type of housing being built, only time will tell. Either way, building merchants can be buoyed by this news and with the conservative government’s backing behind the plan. Only another snap election would be the plan in jeopardy.

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