In a report, Morningstar DBRS said it was “hopeful” about a recovery in the housing market due to the stabilisation of rates and building costs
The UK is likely to continue missing its housing targets as the planning system and uncertainty hinder development, according to a credit rating agency.
In a report, Morningstar DBRS said it was “hopeful” about a recovery in the housing market due to the stabilisation of rates and building costs. Nonetheless, it said builders faced a “myriad of ongoing challenges” that made meeting housing targets in the near term an “uphill battle”.
Both the Conservative and Labour parties have set housing targets of 300,000 homes built annually, but builders have constantly failed to meet the targets.
Morningstar DBRS said builders were contending with “upcoming regulatory changes, considerable red tape, a shortage of small builders, a tight labour market, and incentives required to attract new homebuyers”. The company said all these factors impacted builders’ profitability and, consequently, the number of homes built.
The report said: Notwithstanding the government’s plan for increased housing, we anticipate builders will continue to tread cautiously and manage housing delivery with an eye toward maintaining their own profitability, while continuing to invest for the future.
Morningstar DBRS said it was yet to be seen whether the government would manage to speed up the planning system as proposed.
Changes to housebuilding regulations to make homes more energy efficient through the Future Homes Standard plan would also require builders to improve their skills and adopt new technologies. The report said this would lead to higher costs for firms, as well as other challenges, like design changes, a lack of expertise and dealing with new supply chains.
Morningstar DBRS said smaller housebuilders may struggle with this more.
It added: Over the years, SME builders have been disproportionately impacted by bureaucracy and challenges accessing suitable land.
The report added: Unless there is considerable government reform encouraging SME builders, we believe the problem will only get worse as big builders gain market share and continue to benefit from their economies of scale as it relates to land acquisition, preferential subtrade scheduling, and materials pricing.
The company said uncertainty around housing affordability also affected housebuilders and meant they needed to introduce incentives to boost demand, which ultimately impacts profitability.
It also said builders were less motivated to develop homes for low-income buyers, as the demand for step-up or luxury homes was less cyclical and generated more profit.