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Housebuilders' profit fears over affordable homes

Nearly 10 per cent of housebuilders believe building affordable housing is hitting their profit margins, a survey by Lloyds Bank has revealed.

The major report, which surveyed more than 100 businesses in the housing supply chain, also found that four in 10 of those surveyed are worried about the impact affordable housing obligations could have on their margins.

Lloyds Bank Commercial Banking head of housebuilders Alasdair Gardner said that the report highlighted the wider challenges of building affordable housing across the UK.

He said 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.”

However, confidence remains high among housebuilders, 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 about the sector.”

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

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

Depending on the size of the business, investment priorities varied, with 75 per cent of SMEs saying they wanted to hire additional staff.

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

Nearly 90 per cent of respondents are planning to increase the size of their workforce in the next 12 months.

The research suggests that about 100,268 new roles will be created within the industry by the end of 2016 – over half of which will be with SMEs.

Other findings included nearly 50 per cent of those surveyed 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 per cent) 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.

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