Housing construction set to move at slower pace with questions around Section 106 impacts

News07 May 2020Luke Cross

Housing associations (HAs) have welcomed the phased restart of construction despite some expecting social distancing measures to slow the pace of completions and questions around the impact for Section 106 delivery.

The pace of housebuilding looks set to be slow in the coming months (picture: Getty)

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Housing associations have welcomed the phased restart of construction despite some expecting social distancing measures to slow the pace of completions and questions around the impact for Section 106 delivery #ukhousing

The phased reopening by builders including Taylor Wimpey, Vistry, Persimmon, Bellway and Barratt will have a direct impact on the affordable housing sector, particularly for HAs, for-profit registered providers (RPs) and councils that rely on the house builders for contractual, joint venture and Section 106 delivery.

But HAs are expecting a significant drop in completions in the current financial year.

Sanctuary Group – one of the sector’s leading developers – said it expects its 1,500-home programme to come down by half, a sentiment echoed by Midlands provider Longhurst Group.

Others such as L&Q and The Guinness Partnership have confirmed reductions but not released any further details.

Rob Griffiths, chief financial officer and deputy chief executive at Longhurst, said some of its sites have started to reopen, but certain jobs are taking longer than usual because of safety guidelines.

Like others in the sector, the group is forecasting a significant drop in completions for the current financial year, with projections submitted to Homes England for its strategic partnerships.

Meanwhile, the implications for providers that rely on the Section 106 market are yet to be seen.

Peter Denton, chief executive of Hyde Group, told Social Housing that while delivery numbers will be “shy of what we wanted”, he has been pleased to see the continued level of enquiries and reservations on shared ownership.

However, he said the Hyde approach will also be “cautious and realistic”, with the group already stress-testing for a six-month hiatus in sales and the subsequent impairments.

Mr Denton warned that the growing level of unemployment is set to carry significant economic ramifications, and will mean greater demand for affordable housing.

“Affordable homes are never going to be needed more than they are now,” he added.

Hyde confirmed to the markets last week that it is set to use a mixed funding model to develop homes in the future, including grant and debt funding, partnerships and joint ventures with house builders, local authorities and third-party institutional investors.

Helen Collins, head of Savills’ Affordable Housing Consultancy, said schemes could take longer to build out if labour on site is restricted by social distancing measures.

“In previous downturns we have seen more – not less – affordable housing provided on private sites as a result of economic stimulus packages,” she said.

“There is a risk that financial viability of new sites will be squeezed if costs increase and prices fall. This may lead to a reduction in affordable homes provided through Section 106.”

She added: “In our experience most for-profit housing providers have broadened their business models to include development with grant, as well as Section 106, so have multiple routes to market.”

L&Q – the country’s biggest HA builder – told Social Housing that it is keeping the timing of the reopenings of its 14 construction sites where it has full control under review until the government’s next lockdown announcement.