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05 March 2024

Developers right to protest new laws

By Graham Norwood

One emerging argument in the year-old debate about the effects of the housing market slowdown on developers is the cost of abiding by government regulations.

Developers are often quick to complain about anything they regard as outside interference, of course, and in recent years have tried to turn the word "regulation" into an all-embracing Bad Thing, a kind of smear that should be avoided.

Therefore since the millennium developers have complained vociferously about new building regulations, the need to install facilities for people with disabilities who occupy new homes, the introduction of Home Information Packs for buyers, and the Energy Performance Certificate legislation. It all gets in the way of the free market, say developers – who perhaps conveniently overlook the fact that other regulations urged them to build high-density, high-profit apartments for many years with scant regard for what that policy would mean for the wider housing market.

The problem with crying wolf as often as developers do, is that when a rather more pressing crisis comes along, there is a tendency among the rest of the population to shrug its shoulders at what it sees as yet another complaint from house builders.

That would be a shame now, as developers have – for the first time in a decade, perhaps – a genuine reason for complaining about the cost of regulation.

The slowdown in the United Kingdom housing market has hit new-build homes particularly sharply. Prices have fallen 20 per cent-plus in the new-build sector, completions are down about 30 per cent and sales down a catastrophic 60 per cent or so.

Even bigger problems have hit the price of developable residential land, which has already plummeted 50 per cent in the past 15 months and looks likely to fall significantly further in 2009. The consequence of all of this is that many developers have either gone bust already (around 50 small builders in the UK went into administration in 2008) or have to drastically restructure debts (Taylor Woodrow is the main example). All the survivors have to trim their costs to the bone.

Which is where the latest government regulations come in.

The Home Builders' Federation says three new UK government regulations – making all homes zero-carbon by 2016, the requirement to provide affordable housing with all significant private housing schemes, and the forthcoming Community Infrastructure Levy to be charged on developable land – could add £3 million (Dh16.3m) per hectare to the cost of building new homes. Now this may have been achievable in the Age Of Plenty, also known as the period from 2000 to 2007, when house prices soared and high-density schemes were prolific in order to meet government targets and to help developers bolster their own profits. But in a downturn, when land values have already dropped steeply, when build costs are soaring anyway…

For once the developers have every right to complain – these regulations may well make many of them go to the wall. Savills, the property consultancy and estate agency that has been monitoring costs for some builders, has thus described the effect: "This puts many parts of the country into zero land value territory, and could halt the promotion of land by landowners."

Now the problem with simply relaxing or removing these regulations is that developers would likely make little or no progress on the worthy causes that lie behind their introduction.

After all, stricter building regulations have improved the energy efficiency of UK homes far more than any voluntary initiatives from builders.

Likewise there has been much 'planning gain' in the shape of new school halls, community facilities, improved roads and landscaped open spaces thanks to the much-derided Section 106 agreements – very few would have happened if the builders themselves had been left to voluntarily offer them to areas imminently occupied by new housing schemes.

So what could be done to help the genuinely-battered development industry while trying to keep house-building standards high and giving the government a way out of a housing crisis caused by global economic forces?

For a start, targets for new homes and their improved eco-efficiency could be re-phased to acknowledge slower building rates. Keeping the targets in stone (and they are ambitious, involving three million new homes within 11 years) will only lead to a humiliating climbdown later this year or next when it is obvious they will not be met. The date for introducing carbon-neutral construction could also be set back, rather than allowing 2016 to arrive – and that target, too, missed in embarrassing style.

There is nothing wrong in the government admitting that its noble objectives of just 18 months ago have been derailed by the global economy.

In the stormy weather of 2009, a welcome rush of reality may help the house builders, too.