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HOUSING INVESTMENT PLUNGES TO POST-WAR LOW

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Britain's housing construction industry is locked in a cycle of low investment, low productivity, inadequate traini...
Britain's housing construction industry is locked in a cycle of low investment, low productivity, inadequate training and a lack of innovation, according to a study by the Joseph Rowntree Foundation.

The report finds that investment in new housing in the 1990s has fallen to its lowest average level since the second world war and is far below that of other major industrialised economies.

Although demand for new properties is forecast to rise, there is little prospect of sufficient homes being built.

Analysing the results from a three-year research programme, Michael Ball of South Bank University concludes that both the workings of the market and the internal structure of the housing construction industry are to blame for current shortcomings, rather than the performance of individual companies and builders.

Professor Ball's report urges the government to help bring stability to the industry by raising the level of investment in subsidised social housing and setting credible national targets for housebuilding.

Among the major structural problems identified by the report:

-- Investment in new housebuilding has - with the exception of a few, short-lived surges - been falling for more than 35 years. Council and other publicly subsidised housebuilding has been drastically curtailed, but house construction in the private sector has also declined

-- A volatile housing market in the UK has damaged the housebuilding industry's efficiency. The lack of stability has made it harder for firms to plan ahead and more risky to invest in training and new techniques

-- Housebuilding suffers from a chronic shortage of skilled labour. Even in the current trough, companies have found it hard to recruit and any improvement in output is likely to be delayed as a consequence. The skill shortage acts as a barrier to innovation as well as expansion

-- Training has generally been of a lower standard in Britain than in continental Europe. The number of apprentices and trainees in the industry has fallen and site-based training is increasingly rare

-- The housing construction industry in countries such as the United States and the Netherlands uses modern techniques and better trained labour to produce homes of equivalent quality at far less cost. Consumers in those countries often choose to take the benefit in higher quality

-- Housebuilders in Britain have faced increasing competition from non-residential construction projects from labour, plant and materials. This 'crowding out' of housebuilding by other private sector work helps to explain why the industry responds so slowly to increases in demand

-- Sharp increases in land prices at times of rapid house price inflation followed by collapse have had a destabilising effect on the industry because of their drastic effect on the value of housebuilders' assets

Among the consequences of falling investment in housebuilding, the report notes that homes are built with a design life of about 60 years, but are now expected to last far longer. Nearly twice as much money is now invested each year in repairing and maintaining existing properties as is spent on new building.

Yet the report finds that the housing repair industry - especially in the private sector - is fragmented, technically backward and lacking in business skills. The market is dominated by small, undercapitalised businesses that do no training, while reputable companies are obliged to compete with 'cowboy' firms who charge no VAT.

The report calls on the government to bring greater stability to the housebuilding market by setting and maintaining national housebuilding targets. It argues that credible forecasts of future demand would make it easier for firms to improve efficiency, retain skilled labour and provide training of a high quality.

The government is also urged to start raising the level of its own investment in low cost social housing. The report proposes the deliberate use of these subsidies to stimulate the building industry during times of recession.

Building regulations should, meanwhile, be made more stringent and other incentives introduced for builders to adopt high standards of design and materials. The aim would be to reduce the need for subsequent repairs and to ensure that new homes are more adaptable to changing household needs.

Reforms to the housing maintenance industry should include the reduction or outright abolition of VAT on repairs and the introduction of consumer warranties for the quality of work.

Professor Ball said:

'Housing construction has been seriously neglected within overall housing policy. As a result we have an industry that produces over-standardised, high cost homes and can only respond weakly to variations in demand and consumer preferences.

'The housebuilding industry needs to consider how it can best reform its own, internal workings. But government also has a major role to play by taking action to reduce the volatility in the housing market which has had such a destabilising effect on the quality and quantity of new homes.'

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