23 Oct 2017

Custom Build and the system change needed in UK housing

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Custom Build and the system change needed in UK housing

I attended my first meeting of NaCSBA’s Custom Build Group last week, and what a lovely bunch of intelligent pioneering people they were, focusing on growing the sector and the system change necessary for this to happen.

We were joined by Mario Wolf, the director of the Right to Build Task Force, who’s doing a great job spreading the word about custom build around the country, thanks to Nationwide Foundation funding.

And just as importantly, Wolf is in the first stages of a three-year-plan to make the Task Force financially sustainable, so that it can continue into the future.

The meeting, under the excellent chairing of Inhabit Homes’ Gus Zogolovich, covered a lot of ground; these people are at the coal face of a massive system change in the UK housing market.

What came out of the discussions, was that the key to system change is that a number of things have got to change at the same time. System change is always a challenge.

Reinventing the car market

It feels a bit like electric cars. In the early days, when the technology was developed, the big incumbents moved to crush it in a variety of ways. This included using their political lobbying power and even buying up start-up companies and closing them down.

Who remembers the Norwegian company that invented the Th!nk electric car in the 1990s which was bought by Ford, which then lost interest in the scheme?

But in the last few weeks, major car producer after major car producer have lined up to announce the date by which their entire range will be electric.

A number have described this as a tipping point, and nearly 40% of new cars in Norway are now electric.

It’s instructive to understand how this has happened. There has been a lot of investment in innovation both within the incumbents and from start ups (think Elon Musk and Tesla).

Customers have increasingly shown that they are interested in buying the product, indeed the relatively higher prices have made electric cars a status symbol, and Hollywood stars have been amongst the early adopters.

And Governments, like Norway, have heavily incentivised electric car purchase and rolled out charging infrastructure.

But the big change has been the announcements by national governments of the date by which all internal combustion engines will be phased out.

And of course, this follows the Paris climate change agreement and the substantial growth in anti-pollution public sentiment (itself enabled by better sensors and political leadership),

The custom homes challenge

Growing custom build in the UK feels like a very similar system change challenge.

There is a lot of start-up innovation, although not yet the Elon Musk scale of investment in this. And the incumbent house builders are mainly trying to suppress the change. But Government doesn’t really understand what is required to drive this system change.

However, the discussion among the NaCSBA Custom Build group was illuminating as these people really understand the challenge.

On the regulatory side, the planning system is clearly critical. If anything, this is currently in reverse as local planning authorities game the Custom Build Registers to try and meet their Right to Build obligations in as limited a way as possible.

There were a number of concrete examples of this happening, although also a recognition that land promoters were also trying to game the system in inappropriate ways in the opposite direction.

And the Government’s policy change appears to undermine the likelihood of serious change. This is because it now allows local authorities off the hook for granting planning permission for serviced plots if the numbers on the Custom Build Register exceed 20% of the authority’s land supply.

In addition, there was the usual discussion of how the current wave of plan policy making in this area (a small percentage, typically 1% to 5% of large sites as serviced plots) was actively destroying custom build. Instead, the group felt that the Petersfield neighbourhood plan whole site allocation approach was much more fit for purpose.

Financial imbalance

In addition, there was much discussion of the current lack of a financial level playing field for custom build, never mind the incentives needed to drive system change.

Custom build has higher build costs, but with known purchasers charges a lower profit margin and will become financially competitive when volumes rise. The single financial incentive has been the complex CIL exemption, which only exists in a few places, that’s a marginal financial benefit that’s now slated for phasing out.

Custom build doesn’t benefit from the tens of billions of pounds Government is pouring into the pockets of the speculative house builders through Help to Buy, thanks to their powerful lobbying machine.

The latest Tory party announcements on this were scarily silent on the possibility of a Help to Build equivalent or of the long awaited announcement of year two of the much anticipated, and critically needed, Community Housing Fund.

The contrast with the electric car system change in Norway couldn’t be more stark.

But custom build enablers and developers are made of tough stuff. We know that the benefits to consumers of new homes they love, and to the country of increased supply of new homes, are worth fighting for.

The role of the Task Force in promoting custom build sites of more than 100 plots (and community-led sites of more than 30 homes) was noted, and there was debate about whether Homes England (the soon to be rebranded Homes and Communities Agency) understood, at senior level, how important its role in this system change would be.

Public land and funding, as well as exemplar projects. are clearly critical to achieving the change. Local authorities will also be crucial in this.

The role of the purchaser

Of course the importance of the customer was also discussed. Buying custom build is normal in most countries around the world, but in the UK it isn’t yet.

It takes time to educate individual purchasers at individual sites – a classic example of a barrier to system change, a bit like the lack of an electric car charging infrastructure. Exemplar schemes and investment in publicity over a long period of time will be also be needed to ensure success.

The Communities Select Committee chair, the massively respected Clive Betts, recently asked me why custom Build was taking so long to get going. It was, as usual, an excellent question.

In fact, it’s the key question, and it has taken me some time and a lot of research to understand how to answer it. The answer is that Government-led system change is required to make a difference.

Chris Brown is Executive Chairman of Igloo Regeneration

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