UK housebuilders face challenge to rebound The continuing shortfall in house completions demonstrates the damage done to the UK housebuilding industry by the global financial crisis. Data from analysts at Peel Hunt and Numis Securities show that completions in 2013 at the UK's biggest housebuilders are expected to be down by a quarter on 2007 levels, on a pro-forma basis. This not only confirms the ground the top developers still have to make up to reach 2007 volumes - let alone start adding to those levels of supply - but also underlines the depth of the industry's downturn, which analysts expect will end up lasting at least 10 years in terms of volumes. "Most of the industry in 2009-10 nearly went bust," says Steve Morgan, founder and chairman of Redrow. Only two or three didn't come close to going under. The market's only really recovered in the last two years. Production by the largest housebuilders fell 39 per cent between 2007 and 2009 to reach a nadir of 47,500 homes, according to the Peel Hunt data. Since 2007, only two of the housebuilders have recovered in terms of pro-forma volumes - which take account of mergers and acquisitions - and these are, to an extent, outliers: Berkeley, the upmarket developer, and Galliford Try, which operates the Linden Homes brand and makes 60 per cent of its revenues from general construction. The scale of the shortfall is a concern for those who see the industry as central to solving a housing crisis in the UK. "There is a need for 240,000-250,000 homes a year in the UK," says Clyde Lewis, analyst at Peel Hunt. We haven't built that number since the 1960s. Builders have witnessed runaway rates of reservations in the nine months since the introduction of Help to Buy, a government incentive scheme that offers top-up loans on new-build homes. But the housebuilders warn that high short-term sales rates alone will not bring a longer-term increase in supply, because developers will quickly run out of sites with planning permission. The coalition has sought to streamline the approval process by introducing the National Planning Policy Framework, which gives the benefit of the doubt to developers appealing against planning decisions in local authorities that lack adequate plans for development. But builders continue to complain about onerous conditions attached to development. Mr Morgan says: "Until we get the bureaucracy out of planning . . . we just can't get on and build." The industry is also concerned that, with a general election on the horizon, housebuilding will become a political issue - as illustrated by Labour party leader Ed Miliband's call for a "use it or lose it" approach to landbanks. "Bold measures will be required to take the industry beyond a business as usual recovery," says one executive at a top five housebuilder. But the risk is that, unless these are well thought through, investment could be discouraged and you won't end up with the sustained increase in volumes that are needed. A further problem for the housebuilders is that the supply chain suffered equally in the downturn. Brickmakers, for instance, closed down factories and cut staff as demand fell away. Labour supply continues to be a problem. The Home Builders Federation, a trade body, says the housebuilding industry shed 40-50 per cent of its capacity - in terms of jobs and office closures - in the immediate aftermath of the crisis. "When an industry shrinks from the size of 2007 to half the size, you can't just say: "Right guys, get back up,"" Mr Morgan says. The people who left the industry aren't just sitting on the side of the road waiting. They're gone. Many bricklayers, as in the early 1990s recession, left for other countries recovering more quickly, or moved to other industries or non-skilled jobs. A third of construction groups reported difficulty recruiting bricklayers and plasterers in the July-September quarter of 2013, up from 7 per cent in the first quarter, according to a survey by the Construction Products Association. "The question is whether the industry will be able to attract them back given the length and strength of the recession this time," says Noble Francis, economics director at the CPA. The resulting competition for labourers is starting to push up wage rates. Despite the persistent shortfall in volumes, the big listed builders have still managed to maintain a market share that rose from 20 per cent in 1997 to almost 45 per cent this year, according to Numis estimates. This is partly down to the continued woes of the smaller, private housebuilders. "What's mucking up the whole thing at the moment is all the second-liners can't borrow money from the banks," says Charlie Campbell, analyst at Liberum Capital. If the government wants to build more houses they either need to free up planning or they need to find a way to free up financing so [smaller builders] can get land.