COVID-19 and Housing Supply: Is delivery of housing bouncing back?

23 Jul 2020

Policy area: Residential

The onset of the Covid-19 pandemic has affected all facets of the economy. In the housing sector, the delivery of housing continued to plummet month-on-month since April leading up to June 2020. Before the pandemic, the UK was facing a housing crisis as the demand for housing exceeded the supply. Critically, the pandemic has further amplified this issue with many people living in overcrowded homes or homes with insufficient living spaces. Delays in planning permissions and the difficulties of ensuring social distancing measures at building sites has meant that the government’s housebuilding targets may not be able to be met, including the ambition of building over a million houses by the mid-2020s. So, let us break it down and have a look at each of the factors affecting delivery of housing.

The Planning System

The pandemic has caused a disruption in the planning system and this this has exacerbated already existing delays in delivering local plans and applications, resulting in an even further reduced number of permissions granted. As a result, some ongoing and planned future housing projects have experienced setbacks. According to experts, this will have a knock-on effect on local authority housing delivery tests which may result in the exacerbation of the housing crisis and the government having to take control from failing councils. Importantly, Covid-19 has further underlined the need for the government to accelerate the planning process in order to build momentum in the delivery of housing.

Impending announcements touted by the government to reform the planning system may go some way to resolve these issues.

Construction sites

According to Official National Statistics, output fell by -17.7% in public housing and -27.6% in private housing for the most recent three months of the year. Furthermore, 193,000 residential developments in England which were being placed on hold are estimated to be equivalent to 79% of total supply in 2018/19. The data suggests that developers are going to experience a fall not only in housing delivery but new build sales this year. This has been attributed to the decision of developers to close construction sites given the challenge of adhering to social distancing measures in a profession that heavily relies on collaboration. Covid-19 has affected the productivity and the way in which construction workers work.

Whilst the government’s revision of social distancing from two metres down to one metre was welcomed, construction output has decreased with less homes being built as many construction sites are operating with limited staff.[1]

Stamp Duty Land Tax (SDLT)

As the nation is coming out of lockdown with trading rules being eased, the government has implemented several strategies to support the delivery of housing. Specifically, raising of the Stamp Duty Land Tax (SDLT) zero threshold on residential property to £500,000 has been introduced with immediate effect until 31st March 2021 to help build momentum and increase market activities. Savills’ analysis of Land Registry data suggests that 90% of home sales in England are below £500,000. This means the temporary measures are likely to incentivise buyers to purchase residential properties, including investors, but they will still incur the SDLT investor surcharge.

Build-to-Rent

Despite the impacts of Covid-19, the Built to Rent sector remains attractive to investors with many projects in the pipeline. The Build to Rent industry evolved out of the last global economic crisis as a new way of providing additional housing supply, continuing to build and support economic recovery. The sector has been growing quickly and in challenging times, can play a more significant role in delivering the government’s stated pledge of 300,000 new homes a year by the mid-2020s, up from the 241,000 built in 2019.

There are challenges facing the housing industry through the planning system, social distancing at construction sites and Stamp Duty Land Tax (SDLT). Despite this, the Build to Rent sector presents an opportunity to stimulate housing delivery at a faster rate. More investments and deregulation in this sector may support the government to combat the housing crisis facing the UK. Ultimately, Build to Rent underpins the changes society wants to see such as placemaking and affordable, quality homes. 

 

Isabel Buliani, BPF Policy intern