1. home and garden

The Economic Footprint
of House Building
in Wales
May 2015
House Building in Wales
01
CURRENT ECONOMIC FOOTPRINT
5,840
POTENTIAL ADDITIONAL ECONOMIC BENEFITS
02
WELSH GOVERNMENT PROJECTIONS
+2,660
Current Delivery
[5,840 homes p.a.]
Welsh Government 2011-based
household projections
[additional 2,660 homes p.a.
above current delivery]
Economic Output
[cost of new construction]
£481m
+£219m
+2,430
+£18.4m
+370
+£3.4m
+£54m
Economic Output
13,400
NI & PAYE
[p.a.]
Jobs
[13,400 jobs in the Welsh house
building industry]
Council Tax
[p.a.]
£101m
03
Direct Employment
Indirect & Induced
FTE Employment
New Resident
Expenditure [p.a.]
NLP PROJECTIONS
NI & PAYE
[payments p.a.]
+5,821
NLP household projections
£6.9m
[additional 5,821 homes p.a.
above current delivery]
Additional Council Tax
Revenues [p.a.]
+£479m
+5,320
£119m
+£40.3m
+800
+£7.4m
+£119m
New Resident Expenditure
[p.a.]
Economic Output
NI & PAYE
[p.a.]
Council Tax
[p.a.]
Direct Employment
Indirect & Induced
FTE Employment
New Resident
Expenditure [p.a.]
Design and analysis by NLP (May 2015)
Introduction
Supporting economic growth is a fundamental
priority for the Welsh Government and a core
objective of planning policy. In his Written
Statement of 7 February 2014, the (then) Welsh
Minister for Housing and Regeneration, Carl
Sargeant AM (now Minister for Natural Resources)
stated:
“I am determined that national planning policy
and advice supports economic development and
renewal, and helps provide opportunities for jobs
and wealth creation needed to secure a more
prosperous future for our communities”.
This focus on the economy is echoed within
Planning Policy Wales, which confirms that:
“The planning system should support economic
and employment growth alongside social and
environmental considerations within the context of
1
sustainable development.”
Housing development is now widely recognised
as having a major role to play in driving economic
growth, as well as providing much-needed
homes which represent the foundation of
sustainable communities. The house building
industry comprises a variety of different types of
organisation – from large-scale national volume
house builders to medium size and regional
companies, as well as local builders and housing
associations. These organisations employ large
numbers of people in different roles and provide
income for a wide-ranging network of suppliers.
However, the full economic potential of the Welsh
house building industry is not being realised, since
housing delivery is not keeping up with demand. A
total of 5,840 new homes were built across Wales
2
in 2013/14 . Comparing this figure to the most
recent Welsh Government household projections
3
indicates a shortfall of 2,660 dwellings per year .
It is well-known that the recession brought a sharp
decrease in housing completions in Wales, but the
rate of housing delivery has been declining over
a much longer period and has reduced by almost
70% since 1970.
It is, therefore, not surprising that the Minister for
Communities and Tackling Poverty, Lesley Griffiths
AM, has stated that:
“One of [Welsh Government’s] top priorities is to
increase the supply of housing, including both
4
affordable homes and market homes” .
This report has been prepared by Nathaniel Lichfield
& Partners (NLP) in order to assess the economic
value of the house building industry in Wales and
to quantify the additional benefits that could be
gained if the actual need for housing was met.
This research draws upon a number of national
and regional data sources and applies up-to-date
economic appraisal techniques and benchmarks to
establish the industry’s current and potential future
benefits.
1
The Industry’s Economic Footprint
The house building industry in Wales makes a
direct contribution to the national and regional
economy, which can be measured by its economic
output. The industry supports a significant scale of
employment and contributes to UK public finances
through the tax revenues that it generates.
House building activity in Wales also has an
important role to play in stimulating further
economic activity through the industry’s extensive
supply chains and networks, which in turn generate
additional output, employment, spending and tax
contributions. The construction sector as a whole is
acknowledged to provide particularly high domestic
benefit via its supply chains. Research from the
UK Contractors Group indicates that in 2009 the
construction sector imported less than 8% of its
supply materials, while by comparison, the UK car
5
manufacturing industry imported nearly 28% .
Economic Output
As shown in Figure 1, the Welsh construction sector
as a whole generated approximately £1.5 billion
of economic output (as measured by orders for
new construction obtained by main contractors) in
6
2014 . Nearly a third of this output (£481 million)
was generated by private and public sector house
7
building .
Figure 1: Vale of construction output by orders for new
construction obtained by main contractors in 2014
2
Type of work
Output (£ million)
% of total
Private sector
1,114.6
73%
Housing
428.3
28%
Infrastructure
149.2
10%
Industrial
101.3
7%
Commercial
435.8
29%
Public Sector
405.7
27%
Housing
52.4
3%
Infrastructure
99.8
7%
Other
253.5
17%
Total
1,520.3
100%
Source: ONS Output in the Construction Industry, January
2015 and New Orders, Quarter 4 October to December
2014
Employment
The house building industry requires a large number
of workers with a variety of skills and includes
those working directly for house builders and their
contractors, as well and those employed in the
industry’s extensive supply chains. It also provides
benefits to the wider economy through the spending
power of people employed by house builders,
contractors and other companies within the supply
chain.
Direct Employment
Whilst there is no agreed figure regarding the size
of the house building sector in Wales in terms of
employment, official Government data collated
as part of the Business Register and Employment
Survey (BRES) provides an estimate of the number
of people employed in the construction of domestic
buildings in Wales; in 2013, this equated to
8
13,100 . A very similar figure is identified by the
Annual Business Survey, which recorded a total of
13,400 people employed within the construction
9
of domestic buildings in Wales in 2013 . This is
equivalent to just under 18% of total employment
10
within the Welsh construction sector as a whole .
These figures include workers in a variety of
different organisations, including those directly
employed by developers and their contractors,
including both on-site and office-based roles.
Indirect and Induced Employment
The house building industry supports indirect
investment and employment in supply chain
companies that provide construction materials and
equipment related to house building. In addition,
it also supports local businesses, as construction
workers and those employed in the supply chain
spend their wages in local shops and other
facilities. Hence, further ‘induced’ jobs are created
in the wider economy. However, it is important to
recognise that not all of the indirect and induced
benefits will remain in Wales.
UK Public Finances and Local
Authority Fiscal Benefits
The house building industry in Wales makes a
significant contribution to HMRC revenues through
employee-related National Insurance and Pay As
You Earn (PAYE) contributions, which are estimated
11
to generate over £101 million per year .
The industry also contributes to the Exchequer
through a range of other taxes such as Stamp Duty
Land Tax, corporation tax, landfill tax, business rates
and non-recoverable Value Added Tax.
Meanwhile, it is estimated that residents of the
5,840 new homes built across Wales in 2013/14
alone contributed £6.9 million in Council Tax
12
payments that year .
Resident Expenditure
New housing development also offers an
opportunity to increase local expenditure as
residents spend their money on goods and services
in the local area. It is estimated that residents of
the 5,840 additional homes built across Wales in
14
2013/14 generated £119 million of expenditure
15
over the course of the year and a further £29
million of one-off spending on furnishing and
decorating a property to make their new house ‘feel
16
like home’ . Although not all of this expenditure will
be retained in Wales, a large proportion will support
a range of retail and leisure jobs in local service
sectors, helping to maintain the vitality of local
economies across the country.
Affordable Housing
House building also has an important role to play in
supporting mixed and sustainable communities by
providing affordable housing as part of residential
schemes. Affordable housing includes social rented,
affordable rented and intermediate housing, which
is provided to eligible households whose needs are
not met by the wider market. It must remain at
an affordable price for existing and future eligible
households.
The provision of affordable housing has economic
benefits, as it relieves the financial pressure of
high housing costs, thereby allowing residents to
participate more fully in the economy in terms of
spending. Providing affordable housing on-site as
part of new developments is also beneficial to the
economy in terms of reducing the pressure on
Social Housing Grant funding – thereby enabling
delivery of additional affordable homes. These
economic benefits are in addition to the significant
social value provided by affordable housing, in
providing good quality, secure homes for those in
need.
A total of 2,416 affordable homes were delivered
13
in Wales in 2013-14 , representing approximately
41% of all residential dwelling completions. Figure
2 shows the sectors within which these homes were
delivered.
Figure 2: Affordable homes delivered in Wales 2013-14
Sector
Number of affordable
homes completed
Registered Social
Landlords
1,799
74.5%
Private sector
605
25.0%
Local authorities
12
0.5%
Total
2,416
100%
Source: StatsWales Affordable housing provision data 2013-14
3
The Need for Housing
House building is not keeping up with demand in
Wales, and there has been a decline of almost 70%
in housing completions from 17,300 in 1969-70 to
17
5,840 in 2013-14 (see Figure 3).
The 2011-based Welsh Government Household
Projections, which are to be used as “the starting
18
point” for calculating housing need , indicate a
need for 8,500 new homes per annum between
19
2011 and 2031 . The latest figures on housing
completions indicate a shortfall of 2,660 new
homes per year against this projected level of future
need.
Figure 3: House building completions in Wales (1970-2014)
20000
18000
16000
Number of dwellings completed
Number of dwellings completed
14000
12000
10000
8000
6000
The 2011-based Welsh Government household
projections are based on the exceptionally low
rates of household formation experienced during
the recession years. Now that economic conditions
have improved, levels of household formation
are likely to increase due to factors such as
increased employment opportunities, greater
economic confidence and better access to finance.
Therefore, calculating housing requirements from
the latest official projections without adjustment
for the increased household formation rates
associated with the improved economic climate
would misrepresent the actual need for housing
in Wales. The implication of this is that the need
for housing – and the current shortfall in delivery
– will be greater than that assumed by the Welsh
Government’s projections.
NLP has produced an alternative set of projections
showing the number of dwellings required in each
20
local authority area in Wales . This approach
takes account of the limitations of the recessioninfluenced 2011-based Welsh Government
household projections and adjusts the household
formation rates from 2016 to reflect the improving
economic situation. It applies the 2011-based
Welsh Government household formation rates
between 2011 and 2016 but then adopts the rates
given by the 2008-based household projections
21
from 2016 onwards . These projections indicate a
need for 11,661 new dwellings per annum between
22
2011 and 2031 . This approach indicates that the
current level of housing delivery is only just over half
of the identified housing need across Wales.
There are two additional factors that point towards
an even greater level of increase in household
formation rates over the next few years:
a. NLP’s analysis adopts a relatively conservative
approach in relation to household formation
rates and does not include a “catch-up” for
those who have been waiting for the opportunity
to form their own households and may soon be
able to do so; and,
b. NLP’s analysis just considers the household
formation rates contained within the Welsh
Government projections. These projections are
demographic-based and draw simply upon past
trends. They do not take account of economic
factors, such as employment, regeneration or
other local policy aspirations. Planning Policy
Wales requires consideration to be given to
these (and other) factors in determining local
23
housing need .
Both of these factors indicate an even greater
future need for housing in Wales.
4000
2000
0
Source: DCLG live table 209 (February 2015)
4
5
The Economic Benefits
of Increasing Supply
This analysis shows that, in addition to the
substantial social benefits associated with meeting
housing needs, increasing housing delivery to
the level estimated by the Welsh Government
2011-based household projections would be
of considerable benefit to the Welsh economy.
However, these benefits could be almost doubled
if the supply of housing was increased to the level
of need estimated by NLP’s alternative projections.
These benefits could be increased yet further still
if the housing requirement figures took account of
projected employment growth in Wales.
The Welsh house building industry is already of
considerable importance to the Welsh economy.
However the scale of benefits and value that
can be achieved is constrained by a failure to
satisfy the identified need. Figure 4 indicates the
potential economic benefits that could be achieved
if the housing supply increased to match the
requirements indicated by the 2011-based Welsh
Government projections (an additional 2,660
homes per year above existing delivery) or the more
realistic NLP projections (5,821 homes per year
above existing delivery) across Wales.
Figure 4: Potential economic benefits of increasing housing supply in Wales
Annual Economic Footprint – Potential Uplift
WG 2011-based
household projections
(additional 2,660 homes
p.a.)
NLP projections
(additional 5,821 homes
p.a.)
Direct and
25
Indirect
+£219m
+£479m
Direct
Construction
27
Jobs
+2,430
+5,320
Indirect and
Induced FTE
28
Employment
+370
+800
UK Public
Finance Revenue
NI and PAYE
Contributions
+£18.4m
+£40.3m
Local Authority
Revenue
Council Tax
Receipts
+£3.4m
+£7.4m
Local Community
Benefits
New Resident
29 30
Expenditure ,
+£54m
+£119m
Type of Economic Benefit
Economic
24
Output
Employment
26
These figures would represent the potential benefits
that would be lost if the projected need for housing
was not met and so this research indicates that
the current low rate of housing delivery is holding
the economy back. It therefore presents a strong
economic argument for increasing the housing
supply to the level that is actually required.
All figures are based on current estimates/levels,
which are likely to increase in scale/value in future
years as a result of productivity. Assessments
have been based on conservative assumptions of
economic benefit per new dwelling, taxes levied
and resident spending profiles based on current
averages. On this basis, the additional economic
benefits that could be achieved in the future if
house building were to increase in volume are
therefore likely to be even greater than those
illustrated here.
Implications of Unmet Housing
Need
This analysis shows that significant economic
benefits are being lost due to the under-delivery
of housing in Wales. These include missed
opportunities to generate jobs, tax revenue, and
new resident spending in local shops and facilities.
Limiting the supply of housing also prevents
economically active people from moving into Wales
and, because the shortage in market housing
also exerts upward pressure on house prices, it
will potentially also result in an increase in outmigration as people are forced to move elsewhere
to find appropriate housing. Given that younger
people will typically be the least able to compete
in the housing market, and therefore the most
likely to suffer the consequences of inadequate
housing supply, this may impact upon the number
of economically active persons and thereby reduce
the attractiveness of Wales for potential investors
and employers.
Limiting the overall delivery of housing also serves
to increase the need for affordable housing, which,
in turn is confined by the current availability of grant
funding and low levels of market house building.
The social and economic benefits of affordable
housing are therefore unavailable for many
households in Wales.
Source: Welsh Government 2008-based and 2011-based projections, and NLP analysis
6
7
Summary and Conclusions
This research highlights the important relationship
between new housing and economic growth, in
terms of delivering economic output, providing
employment in a wide range of organisations, and
supporting tax revenue for central government.
The key economic benefits of the house building
industry in Wales include:
a. £481m p.a. in economic output;
b. 13,400 jobs;
c. £101m p.a. in National Insurance and PAYE
contributions from direct employment;
d. £6.9m p.a. in Council Tax payments; and,
e. £119m expenditure p.a. by new residents on
goods and services.
Meanwhile, the analysis indicates that the unmet
need for housing across Wales provides a significant
opportunity for further increasing the sector’s
economic impact.
Comparing the 2013-14 level of housing delivery
against the 2011-based Welsh Government
household projections alone indicates a current
31
shortfall of 2,660 dwellings per year across Wales .
The economic benefits of meeting this need would
be substantial and would provide a much-needed
boost to the Wales’ economy. These benefits would
include:
a. An extra £219m p.a. in economic output;
b. 2,430 additional temporary direct construction
jobs;
c. 370 additional indirect/induced jobs;
d. An extra £18.4m p.a. in National Insurance and
PAYE contributions;
e. An extra £3.4m p.a. in Council Tax receipts;
and,
f. £54m expenditure p.a. by new residents of the
additional housing on goods and services.
The question of just how many new homes are
needed will have to be determined by each local
authority through its LDP process. However, in
terms of establishing only the demographic need
for housing, strong evidence exists to suggest that
the need will be substantially higher than indicated
by the most recent Welsh Government household
projections. The 2011-based Welsh Government
projections are based on the exceptionally low
rates of household formation experienced during
the recession years. With the economic recovery
now underway, household formation rates will likely
return to long-term trends. Restricting housing
delivery to these levels would therefore not meet
the full need for housing.
NLP’s reassessment of housing projections shows
that the number of new homes that are needed
across Wales each year is in the order of 11,661
– almost double the current rate of delivery. The
economic benefits of meeting this shortfall of 5,821
dwellings per year would include:
a. An extra £479m p.a. in economic output;
b. 5,320 additional temporary direct construction
jobs;
c. 800 additional indirect/induced jobs;
d. An extra £40.3m p.a. in National Insurance and
PAYE contributions;
e. An extra £7.4m p.a. in Council Tax receipts;
and,
f. £119m expenditure p.a. by new residents of the
additional dwellings on goods and services.
Although not all of these additional benefits
would be retained in Wales, there would still
be a significant positive impact for the Welsh
economy. Achieving these benefits would help to
support economic stability and competitiveness in
Wales, thereby contributing to local prosperity. It
is therefore important that the economic factors
identified in this report are treated as material
considerations when LDPs are prepared and
planning applications determined. House builders
should also give active consideration to how they
present the economic case for their proposals
to ensure these factors are given appropriate
consideration by local planning authorities alongside
other planning matters.
Endnotes
19
1
Planning Policy Wales, 7th edition (2014), Paragraph
7.1.3)
Allowing for a 4% vacancy rate across all authorities
in Wales
2
20
DCLG Live Table 209 (February 2015) relating to
dwelling completions in the reporting year 2013-14)
3
Based on the Welsh Government 2011-based
household projections (allowing for an average vacancy
rate of 4% across all local authorities) and the number
of dwelling completions in Wales in 2013-14 from
DCLG Live Table 209, February 2015
4
Oral Statement - Housing Supply, 11 November
2014
5
UK Contractors Group (2009) Construction in the UK
Economy: The Benefits of Investment
6
ONS, Output in the Construction Industry, January
2015 and New Orders, Quarter 4 October to
December 2014
7
This includes output generated by house builders
themselves as well as their contractors and suppliers
but excludes induced economic output
NLP (May 2015) “Assessing the Need for Housing
in Wales: A Re-evaluation of the Welsh Government
2011-based Household Projections”
21
The household headship rates set out in the
2008-based projections reflect the long term trends
experienced since the 1960s and are considered to
better reflect the household formation rates that are
expected in the future
22
Again, allowing for a 4% vacancy rate across all
authorities in Wales
23
Planning Policy Wales, 7th edition (2014),
paragraph 9.2.1
24
Based on orders for new construction obtained by
main contractors in 2014
25
Includes builders, their contractors and suppliers
26
8
BRES 2013, Relating to SIC Code 41:202
Construction of domestic buildings, Great Britain
The employment figures relate to construction
workers only and do not take account of any potential
increase in office-based employment that might result
from additional house building
9
27
Annual Business Survey 2013 Provisional Results, as
defined by SIC sub-sector code 41:202 Construction
of domestic buildings, using a proxy based on BRES
2013
10
Annual Business Survey 2013 Provisional Results,
as defined by SIC code F: Construction
11
Based on ONS Annual Survey of Hours and Earnings
Table 5.7a (2014)
12
StatsWales, Council Tax levels by billing authority
and band and Council Tax collection rates
13
DCLG, Affordable Housing Supply: April 2013 to
March 2014 England
14
Based on data from the ONS Family Spending
Survey 2013
15
Not all of this will be net additional expenditure
16
Based on research by Planitherm Glass (2012)
which suggests that the average homeowner spends
approximately £5,000 within 18 months of moving
into a property to make it 'feel like home'
17
DCLG Live Table 209 (February 2015) relating to
dwelling completions in the reporting year 2013-14)
Based on dividing the average construction cost of
homes in Wales (based upon the economic output of
the sector – see Table 2.1) by the average turnover per
employee in this sector (£89,970) from ONS Annual
Business Survey 2012 (released June 2014)
28
Based on research by the Centre for Economic
and Business Research report for the National
Housing Federation (2013) which indicates that the
construction industry has an indirect and induced
employment multiplier of 2.51. This means that
for every 1 FTE construction job, 1.51 indirect and
induced jobs are created elsewhere in the supply chain
and wider economy
29
Based on the ONS Family Spending Survey (2014
edition), using the average split of market and
affordable homes delivered in 2013-14
30
Expenditure figures assume that future affordable
housing delivery will reflect the proportion of total
completions set out in Figure 2.2
31
Based on the Welsh Government 2011-based
household projections (allowing for an average vacancy
rate of 4% across all local authorities) and the number
of dwelling completions in Wales
18
Planning Policy Wales, 7th edition (2014),
paragraph 9.2.2
8
9
About NLP
Nathaniel Lichfield & Partners (NLP) is an
independent planning, economics and urban
design consultancy, with offices in Bristol, Cardiff,
Edinburgh, Leeds, London, Manchester, Newcastle
and the Thames Valley.
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the Year and Just Giving Company of the Year.
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