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Can the housebuilding industry cope with increasing demand for new homes?By: Chris Coates

Suburban homesAccording to the Home Builders Federation, 2014 was an incredibly positive year for the housebuilding industry, with building growth returning to levels not seen since before the 2008 recession. Demand continues to be higher than ever, spurred on by a multitude of socio-economic and legislative factors. Meanwhile, the government is concentrating on getting the country building again because of the benefits it brings to the whole economy and standards of living.

Each of these is having an effect in pushing the market skyward and increasing the demand for housing.

Some of the social based reasons for rising demand include improved life expectancy rates and a growing number of one-person households. There are almost 1.8 million households on English local authority housing registers and significant levels of overcrowding in the private and social housing stock shows that for the past 20 years housing supply has not kept up with demand.

Economically, mortgage rates for both fixed rates and trackers have fallen to their lowest levels since 2007. Data from the Mortgage Advice Bureau shows there have been record cuts on rates in the past three months. The broker's National Mortgage Index shows borrowers can now save up to £600 on a standard fixed rate mortgage compared to the deals available in October.

The falls on mortgage rates may even be of more benefit to buyers than recent high profile reforms to Stamp Duty. The chancellor’s decision to reduce Stamp Duty for 98% of homeowners has created even more good news in the market, especially in the £250,000 - £300,000 band, where homes used to be harder to sell due to the marked jump in Stamp Duty.

Earlier in 2014, the Help to Buy scheme saw thousands of buyers flocking to the market to take advantage of this new piece of legislation. Whether people are buying or selling, at certain price points these changes have created a new mood of optimism.

However, perhaps we need to question whether the housebuilding industry as a whole is in a position to be able to satisfy increasing demand?

According to one recent report by accountants KPMG and the London Chamber of Commerce and Industry (LCCI), about 20% more construction managers, surveyors, electricians and other trades will be needed to meet demand, over the next four years, than were needed from 2010-2013.

About 400,000 people left the industry since 2008 so the industry is now suffering from a severe shortage of almost all skilled people and house building targets are unlikely to be met as a result.

There are problems in the supply chain, particularly in London, in terms of available labourers and pricing. More labour is coming over from Eastern Europe to meet this demand, but the cost has risen, with talk of bricklayers from Europe earning £1000 a day.

Furthermore, brick factories closed down during the recession, too, so housebuilders face the additional challenge of shortages in raw materials, although this again is being addressed with imports from Europe.

These skills and materials shortfalls means the price of construction goes up at a time when housebuilders are trying to create more social and affordable housing. This is something that we should be trying to achieve by using our own resources first rather than relying on imports.

While the current socio-economic climate remains, so will demand and housebuilders need to be prepared to put in the investment, through more grants for housebuilding and a relaxation of the planning laws if the need for home ownership is to be met.

About the author

Chris Coates, Oakford HomesChris Coates, Managing Director, Oakford Homes

Features January 2015

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