Burnham’s ‘housing trap’: Why Manchesterism may not travel

The first policy speech by Prime Minister-in-waiting, Andy Burnham, coincided with the release of the latest Sentiment Survey undertaken by the House Builders Federation in collaboration with Quantum Development Finance, writes Richard Hemmings of Quantum Development Finance.

While Burnham’s speech was light on detail, the survey certainly was not, and highlighted a shocking collapse in confidence among SME housebuilders nationwide. Three quarters of SME developers now hold a negative view, ran the headline, and the usual suspects – planning and viability – have now been joined by developers’ increasingly pessimistic view of market conditions, with sales having slumped as a result of rising interest rates, inflation and the conflict in the Middle East.

The findings raise an uncomfortable question for the incoming Prime Minister: will a Burnham government’s housing agenda actually help the SME developers who build the majority of the nations homes, or leave them further behind?

Burnham’s tenure as Mayor of Greater Manchester saw a surge in housebuilding, with delivery rising at its strongest pace in 20 years. Manchesterism was characterised by the use of devolved powers to deploy taxpayer-funded loans to finance a housing boom, especially high-rise apartment blocks. There is clearly a recognition of the depth of the housing crisis – Burnham himself has outlined his view of the “housing trap” – so if there is genuine impetus to address the issue, might this be good news for developers across the rest of the country?

The answer, at this stage at least, would appear to be no. For one thing, local market conditions in Manchester have been conducive to the success of Burnham’s policies. The Manchester market has outperformed its peers for some time, powered by strong employment and value metrics, and augmented by its renowned levels of graduate retention. These conditions are not replicated across other cities and regions.

Secondly, there is now an increasing focus on council house building and little in the way of encouragement for developers in the open market. Burnham himself has described the plan as the “biggest council housebuilding programme since the post-war period”, but as yet there are few details on how this is to be funded or, just as importantly, who will do the building. It is worth noting that despite the boom described above, affordable housing provision in Manchester repeatedly missed its targets.

Much of the new housing will be provided on vacant local authority and public land with an emphasis on brownfield regeneration and higher-density town centre schemes. In order to turbocharge housing construction to the levels suggested, resource levels in local government planning departments clearly need to be addressed – Burnham has described them as “threadbare” – so would this additional resource benefit the wider housebuilding sector? You would certainly hope so: the Sentiment Survey revealed that 74% of respondents cite planning delays as one of the major obstacles limiting delivery of housing. Adding staff and resource to planning departments is long overdue and is unequivocally a good thing, but if this resource is largely hoovered up by the Government policy diktat to fast-track urban social housing schemes, SME developers may in fact find the planning environment even harder to navigate than they do currently.

Allied to this Burnham is promoting more localised collaboration, granting more powers to devolved mayors and local authorities. As we have seen this had a degree of success in Manchester, but once rolled out across the country will this promote a more efficient and better resourced system, or will developers instead suffer a slow “death by committee”?

Planning is a perennial issue for developers but returning to the survey, for the first time viability issues have surpassed planning as the principal hurdle preventing schemes coming forward, on the supply side at least. In this context it can again be asked, how will the new social housing be funded? Given the plans being proposed it is hard to see a lightening of the burden on SME developers through S106 and CIL, even though almost all of the survey’s respondents said that this would be likely to make them bring forwards new schemes.

Returning to how this will be funded Burnham has stated he will stick to Labour’s manifesto pledges surrounding taxation, so that does raise the possibility of additional borrowing. Bond market vigilantes will be watching closely and any spikes in the Government’s cost of borrowing which translate into higher mortgage costs will further dampen consumer confidence. Separately he has stated that there is “some room” for movement on tax, and most economists would agree that an overhaul (or abolition) of SDLT is an open goal for generating confidence in the sales market. Indeed one of Burnham’s principal economic advisors has signed a letter advocating reform of SDLT and Council Tax. Addressing demand-side dynamics by making property more affordable for all, through reduced property tax or even a new iteration of Help to Buy would be a tremendous boost for SMEs and would address another primary concern revealed by the survey.

Quantum Development Finance is partnering with the HBF on the next round of the Sentiment Survey shortly and it will be instructive to see how proposals laid out over the coming weeks affect confidence in the SME developer market. It is abundantly clear that more houses need to be built to address the nation’s housing crisis, but it is not obvious that Manchesterism is the panacea. Viewing the issue through the narrow lens just of affordable housing provision risks driving ever more SME developers from the market, and the knock-on effects – homogeneity of housing stock, loss of expertise and so on – can surely only be negative for the country as a whole. If the new government is serious about building more homes without hollowing out the SME sector, targeted relief on S106, CIL, SDLT and demand side incentives such as support for first time buyers, should be as much a priority as any council housebuilding programme.

• Richard Hemmings is managing director of Quantum Development Finance