Reuters: Regulatory News: Bricks and finance shortages frustrate British housing hopes

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Bricks and finance shortages frustrate British housing hopes Aug 16th 2013, 11:37 Fri Aug 16, 2013 7:37am EDT * Building and materials firms struggling to expand quickly * Home construction at lowest level since 1920s * Industry shrank sharply to get through downturn * Banks reluctant to finance smaller builders' projects By Brenda Goh LONDON, Aug 16 (Reuters) - When the British housing market finally showed signs of life earlier this year, Stephen Stone's company tried to order concrete building blocks for a new homes project, only to find he would have to wait months and import them from Germany. The experience of Stone, chief executive of housebuilder Crest Nicholson, typifies the industry's difficulties in responding rapidly to government pressure for more new homes to ease a shortage and help a weak economy. "Imagine if you haven't got raw materials like bricks and blocks and you're waiting for three months to get them. It's a problem," Stone said. Bricks and blocks aren't the only problem for a sector that shrank sharply to survive the property downturn after the 2008 financial crisis. It now faces rising costs, and financing conditions remain tough, on top of long-standing difficulties in getting projects approved under Britain's strict planning rules. With housebuilding at its lowest in about 90 years, finance minister George Osborne has launched the first part of a scheme to lend and guarantee billions of pounds in mortgages, aiming to help Britons buy newly built homes with relatively small deposits. But the chances of his "Help to Buy" scheme drawing a rapid response are slim, due largely to the shrunken state of an industry that had relied heavily on foreign workers, many of whom left Britain during the downturn because of a lack of jobs. Britain is therefore unlikely to achieve anything near the 250,000 homes needed each year to keep up with a growing population, and critics fear this shortfall means Osborne's scheme will fuel house prices rather than house building. "The government hopes that we can turn the tap on right away but it doesn't happen that way," Stone told Reuters. "It'll take at least four to six months for the supply chain to respond. The construction industry is 50 percent of what it was. The overseas workers have all gone home." The government declined to comment on its expectations for the industry. Housebuilding in Britain has fallen to levels not seen since the 1920s, according to property consultancy Savills, after the largest housebuilders, such as Persimmon and Taylor Wimpey, retrenched during the downturn to concentrate on raising profit margins rather than their sales. Private housebuilders completed 88,000 homes last year, well below an annual average of 115,000 over the past four years, Savills said. The country's 10 biggest housebuilders, such as Barratt Developments, which construct about two thirds of new homes, have not committed themselves to firm completion targets. However, some say they are aiming to sell 20-30 percent more homes annually in the next few years. Osborne and his department, the Treasury, have also not said how many more homes they want built under the scheme. Its second phase, in which the government will guarantee loans for people buying second-hand homes, will start in January. "There are a lot of other obstacles that the government is not only not overcoming but in some respects is making worse," said Roger Humber, strategic policy adviser to lobby group House Builders Association. LONG WAITING TIMES Stone's lengthy wait shows how building materials makers, such as Wienerberger, Michelmersh and HeidelbergCement's UK arm Hanson, also retrenched in Britain and continental Europe. Such suppliers have shut 19 plants in the last five years as brick production halved due to the waning demand. About 358,000 workers have left the British construction industry, a 15 percent drop since 2008, government data showed. Many building materials makers are now adding shifts and hiring workers, but say a sharp rise in production will take months. "Our customers are going to have to be patient," said David Weeks, spokesman for Hanson, which plans to reopen a mothballed factory in Cloughton, northern England, by the end of the year. "We've been through some severe pain in the last five years; our workforce has reduced by half to about 4,000 today, and we've lost probably 45 percent of our production volumes." On top of this, builders say it can take up to two years to start work on sites due to delays in gaining planning permission. The government has tried to speed this up by giving local authorities more decision-making powers. "There has been a slight improvement. The accent is on that 'slight'," said Taylor Wimpey's CEO Pete Redfern. Overall planning permissions are running at about 140,000 houses a year, slightly above the 100-110,000 mark it was at previously, but nowhere near the 200-250,000 homes that the industry should probably be building, he said. PRESSURE ON SMALL PLAYERS Small and medium-sized housebuilders, which account for about a third of new houses, also have problems in persuading banks to finance their projects. Net bank lending to construction firms has fallen by between 4 and more than 10 percent every quarter for four years, Bank of England data show. A Federation of Master Builders survey found 90 percent of 1,000 building firms questioned in late 2012 said raising finance was as difficult as two years ago, or even harder. "The number of small housebuilders who are actually active at the moment is definitely falling. Some will never start again. Others want to - they want to get land and so on - but they just can't get the credit from the banks," said Humber. Building costs are also expected to be pushed up by new regulations, with local councils to charge housebuilders fees to help finance items such as roads and a government push for a net-zero carbon emissions standard for all new homes by 2016. With such challenges, some have questioned whether the industry has the capacity or even willingness to aim for the 250,000 home target outlined in a 2004 government-backed review of the housing market. Britain experienced housebuilding of over 200,000 a year in the 1950s to late 1970s, bolstered by government efforts to create public housing, data from Knight Frank showed. Private housing completions reached a high of 203,320 in 1968. "250,000 is a figment of everyone's imagination," said Martin Warner, chief executive of brickmaker Michelmersh. "We're miles off that." Link this Share this Digg this Email Reprints

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