Richard Jones, partner at Arcadis, reviews 2016 and looks ahead at the key areas of interest and growth for the industry in the year ahead
In my first column of a new year I like to look back at what has happened over the past year and provide my forecast of what might happen in the next 12 months. Within the context of the much wider UK economy and worldwide events we could not have had a more unpredictable year. So taking the headings that I used to review the sector last year I provide the following commentary.Market context
The new government regime has continued to push housing up the political agenda. There has been a realisation that it is an essential part of UK infrastructure which is vital for economic growth. The Treasury has become more interested in housing, forging a more strategic approach (although it is not quite there yet). In Gavin Barwell there is a housing minister that has an understanding of the sector and we have seen a key strategic move away from the pre-occupation with home ownership to a much broader recognition of other tenure types, in particular private and intermediate rented. In addition there has been a growing emphasis on providing essential civil infrastructure to help support housing development. Two of the more controversial focuses for this government are its apparent willingness to make green belt land available for housing development in certain circumstances and its belief that there is still landbanking by the private housing sector. I expect to see much more on these two issues during 2017.Increasing housing numbers
I predicted last year that the constrained traditional supply chain would lead to a significant growth in modern methods of construction (MMC). There is no doubt that during 2016 we have seen a continuing focus on MMC, with the likes of Berkeley and Urban Splash showcasing their own versions, Berkeley with an expectation that 20% of its product would be provided through this approach and Urban Splash 80%. With the blend of new housing increasingly becoming weighted towards a rented product, whether open market, intermediate or affordable, the key barrier to MMC investment, consistency of demand, is being addressed and therefore I expect to see this initiative accelerate. In particular the public sector, through the likes of the Greater London Authority GLA), the local authorities and the registered providers, is now looking to support/ facilitate the incorporation of MMC into the development process and this is likely to add to the momentum.The impact of registered providers
We continue to see registered providers (particularly in London and the south east) grow in size and influence. Although the merger agenda has been a little hit and miss within the year with a couple falling apart (L&Q/ Hyde and Genesis/Thames Valley for example), we are seeing others come to fruition and more being announced (the most recent being Peabody/Family). Their different business models will grow in influence over the year, in particular their support and appetite for the private/intermediate tenures and their desire to facilitate quicker and more efficient ways of producing this product (MMC).
With the traditional housebuilder looking to de-risk their private sales ”trader” model, we are likely to see the joint venture initiative grow in influence and application on the residential development process. My prediction is that these models will continue to mature and that the industry will quickly realise that they are a fundamental step change in the client/contractor engagement model.HCA and GLA – changing role
Although perhaps not as apparent as I expected I do believe that over 2016 the Homes and Communities Agency (HCA) and GLA did realise that they would have to play a much greater part in helping to facilitate development. Their recognition of different types of engagement models and the way that they can use existing assets, particular land, to facilitate development is growing in importance, particularly their recognition that equitable joint ventures that balance risk with reward is the best way to encourage activity.LAs – growing influence
LAs are becoming more active on a number of fronts. The agenda around direct commissioning and “council housing” is growing which will be supported by the government’s £8 billion commitment to affordable housing over the next five years. Prioritising first time buyers will also grow in influence over the next year or so. Being able to sweat their asset base more aggressively will continue to be top of the LAs’ agenda as pilot schemes, such as the jointly owned private rental portfolios begin to mature and become more accepted.The emergence of new money
As last year the final word goes to the emergence of new money. I have always said that it is only this new money, coupled with new players, that will ultimately increase housing supply. I have no doubt that this dynamic of our sector has now got momentum, through the emergence of the different type of asset ownership developers and a rebalancing of the overall housing tenure split which encourages the new money and new players. This will become more apparent through 2017.