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Social housing profit fears

Four in 10 housebuilders are worried about the effect affordable housing obligations will have on their profits, a survey by Lloyds Bank has revealed.

The report, which surveyed more than 100 businesses in the housing supply chain, found that 42% worry that affordable housing obligations imposed by local authority planning departments will hit their profit margins.

It also showed that nearly 10% of those surveyed believe building affordable housing is already negatively affecting margins.

Lloyds Bank Commercial Banking head of housebuilders Alasdair Gardner said that it highlighted the wider challenges of building affordable housing across the UK. He said that housing associations, which would have taken on the bulk of affordable housing delivery in recent years, have had “a challenge with funding… since the [financial] crisis”.

He added: “We are back doing transactions in that space so hopefully we’re helping [housing association funding], but issues remain.”

HBF planning director Andrew Whitaker said: “The level of affordable housing has a significant impact on site viability and economics. Responsibility for affordable housing provision has shifted in recent years such that private developers now provide the majority of it through cross-subsidy.

“This relies heavily not just on the contribution from the land value, but on the amount the affordable housing provider can pay for the new affordable housing unit.”

He added: “There is a limit to how much a site can support through land value, and requirements need to be realistic and reflect the lower level of investment available to housing providers as rents are squeezed.”

Positive outlook

Confidence remains high among housebuilders, however, with seven out of 10 of those surveyed saying they are optimistic about the industry’s future.

Keepmoat chief executive Dave Sheridan said: “I can see where the concerns are coming from, but we all have responsibility to stimulate housebuilding across all tenures.

“We see great growth in the sector and with the recent changes to right to buy and social rent cuts we watch with interest what comes out of that, but we’re very optimistic.”

Respondents said they were looking to invest an average of 30% of their current turnover in their business over the next five years.

Investment is being led by the largest companies surveyed, which said that they would invest 32% of their turnover by 2020.

Depending on the size of the business, investment priorities varied, with 75% of small and medium-sized firms saying that hiring additional staff was a key focus.

Meanwhile, finding a new premise (50%) and land investment (50%) were investment priorities for the larger companies surveyed.

Nearly 90% of respondents are planning to increase the size of their workforce over the next 12 months.

The research suggested that about 100,268 new roles would be created within the industry by the end of 2016 – over half of which would be with small and medium-sized companies.

Other key findings included nearly 50% agreeing that the planning system is too slow, saying that it is a factor contributing to the housing shortage.

More than a fifth of respondents (23%) said greater local authority support to promote and fund building projects would alleviate the housing shortage, while the same proportion said additional government support would help.

Businesses ranged in size (up to £25m and more than £750m) and included housebuilders, housing associations, developers, architects and electricians.