When I looked back at my predictions for the UK residential market for 2022, I note that I thought it would be ‘more of a bumpy ride’… While I take some relief in the fact that I did get that right, I think bumpy was clearly an understatement as we navigated unprecedented events and ongoing uncertainty throughout the year.
In the last few weeks of 2022 alone, we had the government softening its target of building 300,000 homes a year by the mid 2020s stating that while this is still a goal it will be a “a starting point with new flexibilities to reflect local circumstance”. And literally just before Christmas, we had news from Michael Gove’s department announcing two consultations, one on the National Planning Policy Framework and one on mandating second staircases in tall residential buildings. 2022 gave us much as an industry to deal with right up to the final hour.
And as we head into 2023, there is no doubt we will be in for a rocky start. The backdrop of increasing inflation, rising interest rates, the cost-of-living crisis and increasing material and labour costs combined are creating the perfect storm for the housing market. We’ve all seen the predictions that house prices could fall by between 5% and 10% and banks and building societies are expecting to lend 23% less to homebuyers over the next 12 months.
A tentative start to 2023
As a result, I think we will all be treating the first quarter of this new year with caution. Alongside nervousness around the financial markets there is still much in the way of regulation that our industry will need to ensure it keeps abreast with in 2023. This includes the Levelling Up and Regeneration Bill as it continues to make its way through Parliament as well as secondary legislation from the Building Safety Act.
But as an industry, the housing market is resilient and resourceful and against these challenges there are some areas I really hope we see manifest in 2023.
Focus not just on building housing stock but the right stock
While my hope that we are able to ramp up the delivery of housing stock in 2023 to meet targets is most likely unachievable, what I really hope we see is a collective focus not just on building new sustainable homes but decarbonising existing homes.
In the UK we have the oldest, leakiest most inefficient housing stock in Europe, the Heat and Buildings Strategy set out the path to how to decarbonise these homes as part of the ambitious plan to achieve net zero by 2050. My hope is that in 2023 we really tackle this critical issue. The conversations have been started but now we need significant effort. The construction industry is focusing on upskilling and training the supply chain and creating sustainable solutions to address this issue but without government investment it will be a struggle to meet these necessary sustainability targets, particularly in the affordable housing sector. With the cost to upgrade a property to comply with an EPC rating of C averaging around £20k, we have to avoid scenarios where cost gets in the way of doing the right thing, this must be the year when we see a step change in retrofitting.
2023 will also see secondary legislation from the Building Safety Act comes on stream from April. For many these new regulations will mean the practical delivery of projects and management of occupied buildings will change. This spotlight on information management and the golden thread is critical for our industry. We have made great strides in addressing legacy concerns, but we must be prepared for this new legislation and show that we can continue to build better, safer homes.
The window of opportunity – a case of when, not if, there will be one
Although we have seen schemes being paused as developers protect their position against the recent financial turbulence, there will come a point during the year where we see inflation peak and gradually retreat and activity restarts. While the latest Consumer Price Index figure for inflation is 10.7%, the OBR expects inflation to fall to 3.75% by the fourth quarter. We’ve also recently heard Rishi Sunak reiterate this through his five pledges which include halving inflation, growing the economy and reducing debt. So, there will be that sweet spot later this year when developers will be off and running again as they sense the window of opportunity. While I’m hedging my bets about the exact timing of when this will happen, I am sure that it will.
And in some areas of the residential market, activity won’t stop. I doubt we’ll see the purpose-built student accommodation market slow as underlying demand continues to pump through the system and supply has a long way to catch up. Similarly with build to rent, it shows no sign of faltering although the financial models around it may adapt. And while housebuilders are definitely being more circumspect about new schemes, I suspect in six months-time they will also dust themselves off and go again.
My final hope for 2023 is that with Michael Gove back at the Department for Levelling Up, Housing and Communities we get a much needed focus on planning reform so when the momentum to build returns, we have the right processes and infrastructure in place to create the housing we so desperately need.