Think tank proposes new scheme to protect housebuilding from collapse

Housebuilding could fall by around 38% over the next year, as new research from the Centre for Policy Studies warns of a potential sector collapse if the economy fails to bounce back post-Covid

Construction and housebuilding sites have returned to work after the initial impact of Covid-19. However, new research from the Centre for Policy Studies shows that they are simply finishing off existing projects.

Cautious estimates suggest housebuilding could fall by around 38% over the next year, leading to 76,000 fewer homes being built. The impact could be far worse if the economy fails to bounce back, potentially leading to a near collapse of the sector, says think tank, the Centre for Policy Studies (CPS).

This would disproportionately affect small and medium-sized builders, as well as the half a million workers involved in the supply chain.

CPS analysis shows that the housing sector is uniquely vulnerable to recessions. In the wake of the 2008-9 crisis, it took six years for supply to return to previous levels. A repeat would deal a devastating blow to the government’s plan to fix the housing crisis and encourage mass home ownership.

Already, large housebuilders are preparing to batten down the hatches and ride out the storm, while many in the SME sector risk bankruptcy. Many contractors will lose their jobs. And the effects of this will be felt well into the 2020s.

Emergency plan to support housebuilding

The Centre for Policy Studies has developed an emergency plan to support the sector.

‘Help to Build’ – written by David Cameron’s former chief housing adviser – aims to help all developers to weather the storm, ensure continuing housing supply while saving smaller and medium sized developers from ruin and having to make hardworking employees redundant.

The scheme would allow housebuilders to access grants up to a maximum of £25,000 for each new-build property (capped at a percentage of the home’s value). Given property prices we expect the grants to average around £20,000 – if capped at £3bn, as the report suggests, this would ensure the construction of around 150,000 homes next year.

In return for using this scheme to support sales, housebuilders would be required to continue building at similar levels to their existing pipeline, ensuring that housing supply (and construction employment) are maintained through the crisis and its aftermath at a relatively low price.

The incentive could be used to help potential buyers with a deposit, to support part-exchange purchases, or to convert the unit into an affordable home for either rent or sale.

The CPS is urging the government to introduce Help to Build to limit the likely collapse in housebuilding and ensure the swiftest possible recovery.

Alex Morton, head of policy at the Centre for Policy Studies, said: “The UK housebuilding industry is not just economically and socially vital, but particularly vulnerable to the impact of recession.

“We cannot afford a repeat of the past two economic crises. This scheme will keep housebuilding going over the next 12 months, while laying the ground for further reform, and avoiding a catastrophic slump in supply.

“This scheme – or something very much like it – is the most cost-effective way to protect jobs and keep Britain building.”