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A year after the housebuilding sector started to mothball sites and slash output – just 70,000 new homes are expected to start on site in 2009 compared to 140,000 in 2008 – there are signs of renewed activity in the sector. But rather than a return to the speculative boom of the last decade, the next upturn will be driven by different funding and procurement models. In turn, we can expect some familiar names in housebuilding to fade away, to be replaced by others likes Wates, Bouygues or Skanksa.

The key change is the fact that the public sector will hold more pieces of the jigsaw. The new £17bn-budget Homes and Communities Agency (HCA) will be acting as deal broker, funder and possibly even co-investor to deliver new projects, while also being responsible for the distribution of £18bn in PFI housing credits. Town halls, meanwhile, are ‘market testing’ the idea of public-private Local Housing Companies to deliver new housing. Regional development agencies could also bring forward projects, and some Local Education Partnerships behind ºÚ¶´ÉçÇø Schools for the Future projects are looking to diversify.

In this environment, consultants see opportunities for contractors to enter the residential market or extend their market share. With public sector agencies shouldering more risk than they used to – perhaps by preparing the site and taking responsibility for letting or selling the homes – they will be less inclined to involve a housebuilder or developer whose business model depends on high margin in exchange for high risk. Instead, why not discuss terms with a contractor willing to build on more affordable margins?

‘A developer might want return on capital employed and a threshold margin of 15%,’ says Richard Jones, head of the residential and regeneration sector at EC Harris. ‘Local authorities and housing associations might have engaged with them where necessary, but the main motive was always profit. Now, there is a step change, and we need real transparency among stakeholders. [Property] values can’t be relied on to outstrip costs, so we need different models.’

Mark Breen, associate director at Savills, shares this view that contractors will prove more agile and innovative partners to housing associations and other public sector bodies than housebuilders in the current economic climate. ‘In the context of lower land values [and purchase prices], how to do you develop at the margins of viability? Maybe you bring in contractors at the earliest stages to utilise their supply chains,’ he comments. For instance, with a lower cost base, the public sector agency would be able to plan schemes over a longer time frame.

Overall, there is a sense that the ground rules are changing and opportunities are up for grabs. ‘Contractors should at least be opening dialogues [with the public sector]. In a post-developer world, they need to be having those conversations,’ says Toby Lloyd, a management consultant at Navigant Consulting.

The HCA – created six months ago by amalgamating English Partnerships and the Housing Corporation – is the main agency contractors will need to speak to. As well as distributing the £400m ‘Kickstart’ funding announced in April’s budget – developers and housing associations must submit bids by 8 June under plans to commence 9,000 homes this financial year – it has brought forward £775m of its 2010/2011 budget to the current financial year.

Property values can’t be relied on to outstrip costs, so we need different models

Richard Jones, EC Harris

Here, its priority is restarting stalled schemes. ‘Regional directors are being proactive in making decisions, and responding positively to prioritise stalled projects where the business plan is no longer working,’ says Andy von Bradsky, chairman of architect PRP. Examples include offering a £10m loan towards the infrastructure costs on a 682-home scheme by Crest Nicholson and Galliford Try in Epsom, and £3m for Tottenham’s Hale Village, to be built by housing contractor United House.

Other options open to the HCA include retaining the ownership of publicly-owned land, allowing it to sell licences over parcels of land to developers/contractors rather than seeking capital receipts. ‘The HCA could invest in de-risking the land, then lease plots but retain the overall ownership – the asset value might be worth something in the longer term,’ says von Bradsky. However, no such schemes have yet emerged.

Contractors with balance sheet strength will also be looking at opportunities as investment and construction partners in Local Housing Companies, first mooted in the Government’s 2007 Housing White Paper and being piloted by 14 councils: Leeds, Sheffield, Nottingham, Newcastle, Wakefield, Sunderland, Dacorum, Harlow, Peterborough, Bristol, Plymouth, Wolverhampton, Manchester and Barking and Dagenham (see 1, below). Nottingham is seeking a development partner for 5,000 new homes over seven years, while Sheffield plans to build 2,500 over the next decade.

LHCs would develop housing on council-owned land over several years with some homes sold at market rates and others remaining in council ownership. Contractor Bouygues, involved at Barking & Dagenham’s LHC as a contractor, is assessing similar opportunities elsewhere. ‘We are considering being involved in other places, at a more senior level, in the partnership itself,’ says Thierry de Severac, director of housing, regeneration and private projects.

But there could be another form of local authority-led housing development, where contractors such as Bouygues, Wates, Kier and Willmott Dixon are already in position. Some Local Education Partnerships, the public-private groups set up to deliver ºÚ¶´ÉçÇø Schools for the Future programmes, have a remit that goes beyond education to cover community centres, health facilities or housing (see 2, below). ‘Local authorities have different views, but they could use LEPs to find value for money solutions for other buildings,’ says Jon Spring, director at Turner & Townsend.

So the jigsaw pieces are shifting, creating a new picture of housing delivery in the coming years. Of course, once banking confidence recovers, there will no doubt be a return of speculative housing development – housebuilder Redrow recently signalled its plans to return to the market. But going forward in a lower value, lower margin commercial environment, contractors’ more conservative risk profile and value engineering skills could be perfect partnering material for a new breed of clients.