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Industry leaders call for emergency plan to save UK construction

The Construction Leadership Council has written to the prime minister setting out essential actions to secure the future of the sector.

Research last week showed that without further support nearly half of all companies in the sector face potential failure in the next three months.

Today, in a letter to the prime minister, the Construction Leadership Council has asked the government to implement measures to save cash-strapped companies in the construction supply chain:

Suspend PAYE and CIS tax due to HMRC in April and May for construction and consultancy firms and workers with no financial penalty;

Defer/cancel Apprenticeship Levy payments for the duration of the crisis;

Government to advise all public sector clients, regulated utilities, and firms in the private sector to expedite cash flow throughout the supply chain;

Support the directors of micro-businesses, who currently fall between the support provided by the Job Retention Scheme and assistance for the self-employed;

Direct all government bodies to release all retention monies;

Extend the £25k SME business continuity grants scheme to the construction sector.

In addition, the sector has asked for clear and visible encouragement that the production of building materials continues where possible, and that electrical, plumbing, and general builders’ merchants remain open so that the industry can function.

Andy Mitchell, co-chair of the Construction Leadership Council, said: “The construction industry is a key strategic sector of the UK economy and is playing a vital role in building and maintaining NHS estates, enabling the transport sector to function, and keeping the lights on in homes around the country.

“It is not an either/or question. The UK economy requires a functioning construction sector that can operate safely during this crisis and will rely upon construction workers and companies to get Britain building once we’ve won the war against Covid-19.

“We are calling on the government to take these steps not only to save jobs and companies in the long term, but to ensure our sector can continue to function throughout the weeks and months to come.

“The UK government’s response to this crisis has been bold and necessary. It is time now for it to roll out emergency measures to protect UK construction directly, which is a sector of national strategic importance in good times as well as bad.”

The letter was written by the Construction Leadership Council with support from National Federation of Builders, Civil Engineering Contractors, Build UK, Association for Consultancy & Engineering, Electrical Contractors Association (ECA), Home Builders Federations, Federation of Master Builders, British Property Federation, Construction Products Association, and Construction Industry Council (on behalf of 35 professional institutions and associations).

By Rob O’Connor

Source: Infrastructure Intelligence

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UK Construction Industry in Sharp Slump

UK construction firms saw another tough month in September, according to the latest IHS Markit Construction PMI, which fell to its lowest level since April 2009 on Wednesday after activity fell at its second fastest pace for a decade last month and suggests the sector is in danger of another brush with recession.

The IHS Markit Construction PMI came in at 43.3 for September, down from 45.0 previously and when markets had been looking for no change. This marked the third consecutive decline for the index, which has zig-zagged lower ever since topping out at 55.8 in July 2018. It comes after commercial, civil engineering and residential construction firms all suffered in September.

Commercial firms were again the weakest link, with many suffering due to client hesitancy, which is said to be the result of the Brexit process. Civil engineering activity was reported sharply lower while housebuilders, long the star of the UK construction show given the home supply and demand disparity, saw their fourth consecutive decrease in building. Input costs rose due to higher charges for fuel and some raw materials while employment across the sector fell at its fastest pace since the end of 2010.

“Falling demand from investors and brutal, margin-slashing competition among contractors have sent confidence skittling. Many contractors are now fighting on two fronts, and are being squeezed by rising input costs just as new orders fall sharply,” says Gareth Belsham, director of national property consultancy and surveyors Naismiths. “Britain’s construction sector has become adept at riding out both feast and famine. But even by its volatile standards, the rapid slowdown in demand is causing concern.”

PMI surveys measure changes in industry activity by asking respondents to rate conditions for new orders, production, hiring intentions, prices and inventories. A number above 50.0 indicates industry expansion while a number below 50 is suggestive of contraction. The survey results often correlate with official measures of output, although they can often be wide of the mark too.

The UK construction industry has struggled since the June 2016 Brexit referendum, which has hit the commercial construction sector particularly hard, leading the industry to fall into recession in 2017. Output contracted for three consecutive quarters that year before seeing only a tepid and short-lived recovery in 2018, which has since unwound as the Brexit saga rolls. But the under-the-cosh industry is also now having to cope with the impact that an uncertain global economic backdrop is having on clients.

“The downturn in the construction sector is continuing to worsen, with the risk of a no-deal Brexit largely to blame. The PMI is consistent with construction output falling by about 2.0% in Q3, building on Q2’s 1.2% decline,” says Samuel Tombs, chief UK economist at Pantheon Macroeconomics. “The construction sector could revive quickly if the risk of a no-deal Brexit subsides; in aggregate, the corporate sector has ample cash reserves.”

Tombs, who’s been rated one of the UK’s top forecasters by Bloomberg and Reuters, says the housing market could soon experience a revival because of a decline in the cost of borrowing, which is now feeding through into lower mortgage rates. However, his forecasts suggest the overall construction sector has now seen two consecutive quarters of decline, which is enough to return it to recession at a time when the broader economy is also weak.

UK GDP growth was 0.3% in July, up from 0% previously and marking a strong start to the third quarter for an economy that shrank by 0.2% in the three months to the end of June. The earlier result had seen economists fret about the prospect of a technical recession, which is defined as two consecutive quarters of contraction, although the probability of that happening is now tipped as low.

“We’re revising down our forecast for quarteron-quarter GDP growth in Q3 to 0.3%, from 0.4%, in response to signs that the rebound in industrial production is shaping up to be smaller than we had anticipated. Nonetheless, our forecast still exceeds the MPC’s 0.2% expectation and likely would be sufficiently strong to persuade the Committee that lower interest rates are not warranted,” Tombs wrote, in a recent note to clients.

The UK economy has slowed in recent years amid elevated inflation that’s at times crimped consumer purchasing power, slowing business investment and more recently, a global economic slowdown that’s put the German economy on the door of recession and left the Eurozone at risk of stagnation. Amid that latter slowdown, central banks the world over have rushed to support their economies with lower interest rates and other assistance measures, although the Bank of England (BoE) is yet to follow suit.

Written by James Skinner

Source: Pound Sterling Live

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UK construction buoyed by house-building: surveys

UK construction industry is being shielded from the uncertainty about Brexit by modest growth in house-building, industry surveys showed on Thursday.

Builders registered 37,672 new homes for warranties and insurance from the National House-Building Council (NHBC) between January and March, up 3 percent compared with a year earlier.

NHBC’s figures, which cover 80 percent of the new homes market, are viewed as a lead indicator for the housing sector.

Separately, the Royal Institution of Chartered Surveyors (RICS) said private house-building supported the otherwise subdued construction industry, with overall confidence at an almost six-year low.

While the commercial construction sector has been hurt by falling business investment ahead of Brexit, efforts to narrow a shortfall in the number of residential homes on the market has helped the house-building sector.

Construction represents about 6 percent of British economic output.

“We are pleased to report good numbers for the start of the year, although we do need to bear in mind the situation 12 months ago when freezing conditions caused major hold-ups in registrations as well as build-rates across the bulk of the UK,” NHBC chief executive Steve Wood said.

Uncertainty around Brexit had caused “some dampening” of the housing market for new homes in early 2019, he said.

Prime Minister Theresa May has failed to get her European Union divorce deal through parliament, forcing her to delay the original Brexit date of March 29. A new deadline has been set for Oct. 31, more than three years since the 2016 referendum.

House-building was the only source of growth for Britain’s construction industry during the first three months of 2019, according to the most recent purchasing managers index from IHS Markit/CIPS. The survey for April is due at 0830 GMT.

Reporting by Andy Bruce; Editing by William Schomberg

Source: UK Reuters

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Is ‘No Deal’ the Best Deal for UK Construction?

According to a recent report by www.designingbuildings.co.uk just 15% of construction executives favoured a UK exit from the European Union (EU).

In recent times the Bank of England declared a no-deal Brexit could wipe 8% off the UK’s GDP this year – a bigger hit than the financial crisis – potentially taking 30% off house prices, according to a report in www.building.co.uk.

And yet with the prospect of the UK potentially pulling out of the EU with a No Deal Brexit, there are clearly vital potential issues about to affect thousands of businesses around the country – from a lack of clear guidance on regulations, to a shortage of skills, and a potential lack of access to building materials.

One obvious major concern is the ‘divorce’ could potentially result in a lack of free movement which Prime Minister Theresa May is adamant should take place.

Surely this means the skills shortage could worsen and the UK could become a victim of higher development costs whereby labour demand outstrips supply?

Figures from the Office for National Statistics indicate that one-third of workers on construction sites in London are from overseas, with around 28% coming from the EU. This calls into question the range of skills this one-third has acquired given that construction sites need a combination of skillsets to complete work from engineering to bricklaying.

On the one hand the knock on effect of a lack of free movement could result in the decline in the number of houses being built resulting in construction firms failing to meet the government’s housing target thus deepening the crisis of a lack of housing in large cities.

On the other hand, if investors pull out of the UK, house prices could drop – leaving more empty properties available on the market. Either way, it’s difficult for construction firms to know what to prepare for as Britain meanders its way through unknown territory.

A 2010 study by the Department of Business Skills and Innovation estimated that 64% of building materials were imported by the EU. The same report estimated that 63% of building materials were exported to the EU. After Brexit, importers and exporters may face duties or limits on quantities, which could in turn result in an increase in costs, or a shortage of, construction materials.

Brian Berry, Chief Executive of the Federation of Master Builders, says in a recent press release:

The single biggest issue keeping construction employers awake at night is the skills shortage. If we’re going to address this skills gap post-Brexit, the whole industry needs to step up and expand their training initiatives. Even Sole Traders can offer short term work experience placements and large companies should be aiming to ensure at least 5 per cent of their workforce are trainees or apprentices.

‘But realistically speaking, the UK construction sector can’t satisfy its thirst for skilled labour via domestic workers alone. With record low levels of unemployment, we’ll always need a significant number of migrant workers too – particularly in London and the south east.

‘The Government needs to work with construction to amend its Immigration White Paper and rethink the current definition of low-skilled workers. Level 2 tradespeople play a vital role in the sector and would currently be excluded, which is wrong. We urge Ministers to engage with the construction industry to help improve these proposals.’

The Construction Industry Training Board – www.citb.co.uk, – however, expects positive growth for the construction industry but only in the case of an exit deal as opposed to a no exit deal, according to the CITB’s recent press release.

The annual Construction Skills Network (CSN) report – a five-year forecast into the industry’s skills needs – anticipates construction growth of 1.3% across the UK, down a third of a percent on the previous year. The forecast is based on the scenario that the UK agrees an exit deal with the EU, rather than a ‘No Deal’ situation.

The biggest increase is expected in public housing, which is pulling ahead as infrastructure slows. Financial support from Government at both local and national levels is encouraging a 3.2% growth rate in public housing, up half a percent since last year’s forecast.

Infrastructure is set to grow by 1.9%, down from 3.1% predicted in last year’s forecast. The sector has been heavily affected by Brexit uncertainty and by investors stalling construction of the Welsh nuclear power plant Wylfa in January.

Commercial construction is significantly declining due to investors taking a cautious stance in the face of Brexit. The forecast expects the sector to drop sharply this year then level out by 2023, with zero growth anticipated overall.

However, the housing repair and maintenance sector appears to be benefitting from a quieter property market as home owners halt plans to sell up and instead focus on improving their current properties. By 2023, the sector is expected to have grown by 1.7%.

Despite the wider economic uncertainty, more construction workers will be needed over the next five years. An approximate 168,500 construction jobs are to be created in the UK over the next five years, 10,000 more than in last year’s forecast. Construction employment is expected to reach 2.79 million in 2023, just 2% lower than its peak in 2008.

Steve Radley, Policy Director at CITB, said:

‘This forecast aptly reflects the uncertainty, particularly associated with Brexit that we’re seeing across the wider economy. Currently, concerns around Brexit are weighing on clients and investors, creating a knock-on effect on contractors and their ability to plan ahead.

However, assuming that a deal is agreed, we expect low but positive growth for construction.  Even as infrastructure slows, sectors like public housing and R&M are strengthening. This will see the number of construction jobs increase over the next five years, creating growing opportunities for careers in construction and increasing the importance of tackling the skills pressures we face,”

Whether one prefers the notion of a road to opportunity or the wake-up call of a No Deal Brexit, the clock is ticking for the UK’s construction executives as the sector waits for clarity from the UK Government.

By 

Source: Busubess Bewa Wales

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UK Construction Set for Growth Amid Brexit Uncertainty

The annual Construction Skills Network (CSN) report, which issues a five-year forecast into the skills requirements for the industry, anticipates a 1.3% growth in construction across the UK, which is one-third of a percent lower than last year. The forecast is based on the premise that the UK has an exit deal with the EU.

Public housing is the largest anticipated increase- it appears to be moving steadily ahead as infrastructure declines. Financial support from the local and national government is supporting a growth rate of 3.2% in public housing, which is up by half a percent since the forecast last year.

Infrastructure is expected to increase by 1.9%, which is down from last year’s forecast of 3.1%. This sector has been heavily impacted by Brexit uncertainty and last month’s stalling of Wylfa, the Welsh nuclear power plant.

Commercial construction is going down significantly due to investors being overly cautious in the face of Brexit. The forecast anticipates that the sector will decline sharply in 2019 and level out by 2023, with no growth expected overall.

Despite this outlook, the housing repair and maintenance industry appears to be profiting from a more subdued property market, as homeowners cancel plans to sell and improve their current properties. This sector is expected to grow by 1.7% by 2023.

Although the wider economic outlook remains uncertain, more construction workers will be needed over the coming five years. An estimated 168,500 construction jobs will be created in Britain during that time, 10,000 more than the 2018 forecast. Employment in construction is expected to reach 2.79 million in 2023, which is only 2% lower than its 2008 peak.

CITB Policy Director Steve Radley said that the forecast reflected the uncertainty across the wider economy, primarily due to Brexit.  Concerns about Brexit are weighing on investors and clients at present, which is affecting contractors and their ability to plan for the future.

Mr. Radley said that if a deal is agreed regarding the UK departure from the EU, low but positive growth is expected for the construction industry. Even as infrastructure slows down, public houses and repair and maintenance are showing signs of strengthening. This should result in the number of construction jobs increasing over the next five years, creating more opportunities for construction careers and heightening the importance of tackling the current skills pressures.

Source: CRL

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Britain heads for worst house building decade since 1940s

Britain is heading for the worst house building decade since World War Two.

Despite Government efforts to boost house building, completions in England between 2010 and 2019 are set to average out at around 130,000 per year.

This is well short of the 147,000 achieved in the 2000s or the 150,000 of the 1990s, and half of the level in the 1960s and 1970s.

The picture becomes even worse when population size is factored in.

In the 1960s, the new-build construction rate in England was roughly the equivalent of one home for every 14 people over the decade. In the 2010s, that ratio was one to 43, more than three times higher.

The figures are improved somewhat when you factor in conversions of existing properties, which push the total up – but even then, the total of net additional dwellings – the yardstick for overall housing supply – is likely to be lower this decade than last.

Across the United Kingdom as a whole, the pattern is broadly similar, with house building falling from a peak of 3.6m new units in the 1960s to 1.9m in the 1990s and 2000s, with the 2010s set to come in lower still.

Robert Colvile, Director of the Centre for Policy Studies, said: “The housing crisis is blighting the lives of a generation, and robbing them of the dream of home ownership.

“But as this analysis shows, this is not just the consequence of the financial crisis – it is part of a pattern stretching back half a century, in which we have steadily built fewer and fewer new homes.

“The Government has rightly promised to focus on this issue, and there are encouraging signs that housebuilding is picking up.

“But ministers need to take bold action in 2019 to ensure that the 2020s become the decade in which we break this hugely damaging cycle.”

Source: Construction Enquirer

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UK construction activity slows in August, price pressures ease

British construction activity slowed in August after reaching a two-year high the month before, as builders worked their way through projects delayed by bad weather earlier in the year, industry data showed on Tuesday.

Financial data company IHS Markit said its monthly purchasing managers’ index for the construction industry dropped to a three-month low of 52.9 last month from July’s 55.8, below all forecasts in a Reuters poll of economists.

“The construction sector slipped back into a slower growth phase in August, with this summer’s catch-up effect starting to unwind after projects were delayed by adverse weather at the start of 2018,” survey author Tim Moore said.

The slide follows the weakest manufacturing PMI in more than two years on Monday, but analysts will not have a broad picture of the economy until figures for the much larger services sector are released on Wednesday.

Data released overnight showed robust consumer spending growth, driven by spending at pubs and restaurants, though some high-street shops suffered from hot weather and a long-term challenge from online retailers.

Overall, Britain’s economy has slowed in the two years since June 2016’s Brexit vote, and the Bank of England raised interest rates last month for only the second time in more than a decade on concern about longer-term inflation pressures.

The PMI survey showed widespread capacity shortages remain, and suppliers were taking the longest to deliver building materials since March 2015. Shorter-run inflation pressures eased, though, with input prices rising at the slowest rate in more than two years.

Source: Investing

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UK housebuilders fall after ban on new home leaseholds

Shares in UK housebuilders fell on Thursday after the government banned the sale of new homes on a leasehold basis, starting immediately.

The government said new ground rents would be set at zero as it aimed to end “feudal practices” in Britain’s residential construction industry.

Leaseholds are traditionally applied to flats and apartment blocks where the upkeep of shared spaces is maintained by the building’s leaseholder, who charges residents a “ground rent” to pay for this maintenance.

Single-occupier ground rent

But more recently, some housebuilders have applied such charges to new, single-occupier builds for the permission to make changes to the property. It is this practice that the government aims to stop with the new rules.

Sajid Javid, communities secretary, said: “It’s unacceptable for home buyers to be exploited through unnecessary leaseholds, unjustifiable charges and onerous ground rent terms.”

McCarthy & Stone tumbles

The government estimates that about 1.4 million households across England are on leaseholds, up from 1.2 million in 2015.

The announcement hit shares across the sector. Worst hit was retirement housebuilder McCarthy & Stone, whose chief executive Clive Fenton (left) criticised the government’s actions.

He said: “The proposal to set all ground rents to zero will result in a disruption of housing supply and contradicts the government’s stated objective of seeking new sources of housing.”

The company had expected to generate nearly £33m in profits from freehold reversion sales in 2018. Shares in McCarthy & Stone tumbled 10.59% to 152p in the first hour of trade on the London Stock Exchange.

Other market reaction

Other housebuilders were also lower. Persimmon lost 1.14% to £26.91, while Barratt Developments shed 1.01% to 636.5p, Taylor Wimpey fell 0.82% to 204.3p and Berkeley Group slid 1.67% to £41.39.

Source: Capital.com

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House building helps UK construction output rise at fastest pace in five months

Demand for house building helped offset a drop in civil engineering and commercial construction activity.

The UK’s construction industry experienced a “moderate rebound” in November, as a pick-up in house building helped output grow at its fastest pace in five months.

The Markit/CIPS UK Construction purchasing managers’ index (PMI) showed a reading of 53.1 last month, up from 50.8 in October and easily beating economist forecasts for 51.0.

A reading above 50 indicates growth.

It was the highest reading in five months, with house building projects again emerging as the “primary growth engine” for industry activity.

The survey said participants chalked the growth up to “resilient demand” and a “supportive policy backdrop” for residential development.

It helped offset a drop in civil engineering activity and commercial construction, which was the weakest performing sub-sector in November as Brexit-related uncertainty and a subdued economic outlook weighed on client investment.

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply (CIPS), said: “It appears that policy support and a small recovery in the UK economy has boosted sentiment and encouraged clients to come out of their shells and start building again.

“The housing sector was the primary driver of growth increasing at the fastest rate for almost half a year.

“However, it is private sector companies that need to commit to big-ticket spending, with commercial development still underperforming as persistent Brexit uncertainty continues to bite.”

He added that there was also concern that a drop in new contracts has dragged civil engineering works, with activity dropping for the third straight month and marking the longest period of decline for more than four years.

But some construction managers have expressed hopes that “forthcoming tender opportunities” linked to energy and transport infrastructure programmes will increase workloads.

Overall, companies pointed to a “moderate rebound in new orders” last month, thanks to a “general improvement” in client demand which had softened over the summer. In turn, it sparked a “moderate rise” in sector jobs growth.

Optimism among business picked up from October’s 58-month low, though the survey noted that confidence was still relatively subdued and was hovering near its lowest levels since mid-2013.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said relatively low mortgage rates, the Government’s Help to Buy Scheme and other policy initiatives are likely to keep home building activity bouyant.

“Meanwhile, signs that the Brexit divorce terms will be agreed imminently, enabling future relationship talks to begin, might help corporate confidence to recover.

“But with the UK Government insisting — for now — that Britain eventually will leave the EU’s single market and customs union, firms likely will remain reluctant to commit to construction projects with long-time horizons.

“We expect the construction sector to bump along the bottom as long as a hard Brexit still is one of the options on the table.”

Source: Express & Star

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More land needs to be released for new homes in the UK to meet demand

A rapid expansion of the house building industry has the UK on track to deliver the Government’s target of one million new homes by 2020, but more are needed, according to a new analysis.

Indeed, an additional 100,000 homes are needed each year if the new supply is to have any effect on housing affordability and to boost volumes and improve affordability more land needs to be released in the areas of greatest need, including green belt swaps, says the report from international real estate adviser Savills.

It explains that new homes volumes are up almost 50% on three years ago, meaning that new housing supply is almost meeting demand across most of the UK. However, London and South East regions are bearing the brunt of the shortfall, accounting for 104,000 of the 2015/2016 total, which puts great pressure on affordability. Only a fifth of households can afford to buy the average new home in these regions.

‘Policymakers must take this shortfall in the south east of England seriously if we are to finish the job of solving the housing crisis. Many more new homes are needed at price points that are affordable to the many, and across a range of tenures, if affordability pressures are to be eased,’ said Chris Buckle, director of Savills residential research.

New homes need to be priced as a mass market product to ensure high sales rates, the report says. Increased land release in areas of high housing demand would reduce competition for development sites, leading to lower land values and enabling new homes to be sold at lower price points.

If there were more land on the market, land owners may need to realign expectations on the value of land, Savills argues, though that value will still need to be high enough to persuade them to sell. For the policymaker, it means recognising that lower new homes values may result in less land value to be captured through CIL and section 106.

A commitment to solving the housing crisis is evident in the housing white paper, but to address the crisis where it is most acute will require a regional market led strategy for land release, including a programme of green belt swaps, the firm says.

The report also points out that Government aid, particularly in the form of Help to Buy, has helped boost the number of homes being built and will support around 20% of the 190,000 new homes expected to be built in 2016/2017, compared with 34,000 in 2015/2016 and 28,000 in 2014/2015.

Far the biggest increase has been in the number of homes being built without public funding, both market sale and built to rent units, up from only 62,000 in 2015 to an expected 111,000 this year, an increase of 79%.

The Savills report details evidence of high delivery sites in high demand areas across the South East. These include sites in Andover, Aylesbury and Bedfordshire where homes are priced at a discount of up to 15% compared to the local market on an average price per square foot basis. Each of these sites completed more than 600 new homes for sale in the past three years, a build-out rate significantly above average.

Even in high demand areas, such as Cambridge and Horsham, there are large numbers of homes being sold at a discount to market averages on a per square foot basis, the firm’s researchers found.

‘To build on this momentum, policy needs to go further, and our report contains some uncomfortable truths. Help to Buy may have helped boost housing delivery and given aspiring home owners a welcome leg up onto the market, but something more fundamental needs to be done to ensure we deliver more homes quickly, and at prices that more people can afford, whether to buy or to rent,’ said Buckle.

‘Policymakers need to recognise that high volume delivery of lower priced housing will limit the capacity of developers to fund infrastructure and affordable housing in the way they currently do, via section 106 and CIL payments, so other sources of funding for infrastructure and affordable housing will be essential,’ he added.

Developers will need to change their approach, Savills says, adding that the Government clearly wants to hold developers to account for new home delivery, through better, more transparent data and sharper tools to ensure housing with planning permission is built.

‘Although it is unclear what form these tools will take, this pressure, combined with the new housing delivery test for local authorities, means that it will not be enough for the development industry simply to maintain current modes of delivery,’ Buckle concluded.

Source: Property Wire