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26/06/2020

How the housing industry can make a quick recovery from the Covid-19 pandemic

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Housebuilding / Shutterstock

If the house building industry is to recover relatively quickly from a Covid-19 related slump in demand, then it will need to acknowledge how people’s priorities may have changed during the pandemic, says Richard Cook. A revision to how we calculate housing needs would also be a good move

There’s no doubt that the Covid-19 pandemic has hit virtually every industry since it began. The housing industry is no different, and many construction sites shut down at the end of the March following lockdown being imposed. 

There was also a dramatic impact on housing sales in March and April. As reported in The Guardian in April, figures from Rightmove indicated that there were just over 65,500 homes listed for sale between 8 March and 11 April 2020, compared with around 112,600 for the same period in 2019. That  equates to a decline of 42 per cent.

With lockdown coming to a close, the housing market has shown signs of recovery, with high pent-up demand causing a spike in sales. For example, Rightmove’s June House Price Index showed there were 40,000 new sales agreed between 13 May and 4 June. The average price of properties coming to market during this period was up by £6,000 compared with March, prior to lockdown.

“With almost nine million people on furlough and many worried about job security, this will have an impact on buyer confidence over the next 12-18 months”

There were forecasts during lockdown that house sales in 2020 would fall by nearly 40 per cent on 2019 levels, so it remains to be seen whether the optimistic note struck by Rightmove’s more recent analysis is a sign that the market will improve quicker than expected. It must also be recognised that with almost nine million people on furlough and many worried about job security, this will have an impact on buyer confidence over the next 12-18 months.

“If people are working from home more, they may put increasing value on having a larger dwelling”

In terms of housing delivery, some of the short to medium term impacts of Covid-19 are likely to be:

  • Applicants are less likely to have submitted applications for outline or full planning permission on allocated sites. For example, Torbay Council validated 239 planning applications in April and May 2019, but for the corresponding period in 2020 only 116 applications were validated.
  • The willingness of developers to start development on new sites is likely to have reduced owing to economic and market uncertainty.
  • The delivery rates on sites which were already under construction or which have commenced construction are likely to have been compromised as a result of the lockdown and social distancing.
  • Delivery rates across the board will also have been compromised by the fact that the construction sector saw 32 per cent of staff on furlough (amongst businesses that continued trading), second only to the accommodation and food services sector.
  • The economic downturn resulting from the pandemic is likely to compromise the viability of a proportion of schemes such that these may not now be able to be delivered.
  • The economic downturn has also resulted in some companies within the construction sector to cease trading, either temporarily or permanently, such that the delivery of some schemes will be delayed and may not happen at all.

In the long-term, there are likely to be impacts on what people want from a home. In particular:

  • Working from home could become more commonplace. The ONS Opinions and Lifestyle Survey covering the period 14-17 May 2020 indicated that 33 per cent of people in employment in Great Britain were working entirely from home. The corresponding figure from the 2011 Census (for England and Wales only) was 5.4 per cent. The 2021 Census would, in all likelihood, have shown there to be a significant rise in homeworking anyway, but an even bigger increase could be one of the long-term impacts of Covid-19. If people are working from home more, they may put increasing value on having a larger dwelling (to give them a dedicated work area, for example) with more space for a garden.
  • There could be an increase in demand for homes near open spaces such as parks.
  • If social distancing remains in place, demand for higher density flats, which has helped fuel the growth of city centres, may decline.

While the housing industry is faced with a period of what could be significant change, one thing that will remain consistent is the need to identify the level of demand for new homes in local authorities – ie, how many dwellings should an area be delivering on an annual basis? The standard method was introduced in 2017 as a way of identifying the minimum level of housing need for every local authority in England, based on an overall national target of 300,000 homes per annum. 

“One thing that will remain consistent is the need to identify the level of demand for new homes in local authorities”

There has been much debate about the standard method and the extent to which it will help in levelling up growth between the North and South. A consultation on revisions to the method is due to be published during the summer, with an updated methodology scheduled to be released in the autumn. The last time 300,000 homes were delivered on an annual basis was in the late 1960s and while there has been an upturn in delivery in recent years, the levels of delivery have remained significantly below 300,000, and the Covid-19 pandemic raises the risk that fewer homes will be delivered in the short to medium term. 

“It is important that steps are taken to ensure that the recovery period does not take as long as it did after the last recession”

Following the 2008/09 recession, housing delivery did not start to recover until 2014/15, as shown in the graph. There will inevitably be a drop off in the number of homes delivered in 2020/21 because of Covid-19. However, it is important that steps are taken to ensure that the recovery period does not take as long as it did after the last recession. One way of achieving this will be to have an updated standard method that better reflects the housing need of different geographies and offers a more balanced split between the North and the South to help achieve the government’s levelling-up agenda.

Net additional dwellings delivered in England, 2006/7-2018/19

Source: MHCLG: Live Table 122

There is already work being undertaken by companies, including Pegasus Group, looking at potential revisions to how the standard method arrives at local housing need. One of the main inputs to the standard method as it currently stands are the 2014-based subnational household projections. 2018-based projections (at a national level only) are due to be released at the end of the month and Pegasus Group will be providing further thoughts on how these could feed into an updated standard method when the data become available.   

Richard Cook is group director with Pegasus. Based in its Manchester office, he leads on the company’s economics-related work. This article first appeared on the Pegasus website.

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