Homes slow-down hits region hardest

Sep 1 2008 by Adrian Pearson, The Journal

THE house-building slowdown is hitting the North East harder than anywhere else in the country, The Journal can reveal.

New figures last night revealed more than a thousand planned projects had been shelved.

And developers warned the region’s councils could be left millions of pounds out of pocket as a result.

The Government statistics showed a 6% drop in the number of new homes and businesses planned for the region, the largest decrease in England.

Most new developments in the region are only approved on the condition the developer will either build something which contributes to the community – a new road or a children’s play area for example – or they pay into a pot for councillors to spend.

Known as Section 106 funds, they are an essential way for the North East’s cash-strapped councils to pay for much needed improvements.

Last year The Journal revealed how the authorities were sitting on a £10m Section 106 nest-egg, which was providing much needed interest payments underpinning many council services.

But the Home Builders Federation has now warned city leaders they will have to rethink their budgets because credit crunch-hit developers “cannot afford to bankroll the North”.

Andrew Whitaker, head of planning at the HBF, said the economic slowdown was forcing builders to choose between investing in high demand locations in the South East or less profitable developments in the North East.

He said: “With the way the market is at the moment and the problems people are having in getting finance, it is no surprise there is some slowdown in planning applications.

“Areas like the North East are likely to face a significant drop in the number of homes built... Developers cannot just be building houses on spec as there is a serious problem faced by potential buyers in getting a mortgage. Councils will now have to accept that they are not going to be able to take so much money off developers in the form of Section 106 agreements. This goose that laid the golden egg for them has been cooked.“

Government ordered targets currently predict more than 7,000 new homes a year to be built by 2021, a figure top planners admit might not be met in each of the next two years.

Bill Shepherd, Newcastle Council’s executive member for housing, said “These figures are a reflection of the economy at the moment. I don’t think we are doing much worse than anywhere else, but there are some real challenges.

“We as a council have certain opportunities available to us that the private sector does not.

“The larger developers who do it just to make money at the moment find themselves with a business model which has placed them in significant peril.

“The council as a public body has a bit more scope for what projects it can back and what credit is available. We are not trying to keep the housing market afloat per se but there is a housing problem and we as a council will be addressing that.”

Newcastle regeneration expert Nick Kemp said the developments which do come forward for planning approval will have to take into account the changing times. “Section 106 money is incredibly important to the North East, to local communities, but also to the planning authorities themselves,” he said. “They are a vital tool that allow some negotiations to take place. It is difficult to say how much these are likely to dry up but land has always been any council’s best asset and we will still have a chance to get the best out of it.”