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* Building and materials firms struggling to expand quickly
* Home construction at lowest level since 1920s
* Industry shrank sharply to get through downturn
* Banks reluctant to finance smaller builders' projects
By Brenda Goh
LONDON, Aug 16 (Reuters) - When the British housing marketfinally showed signs of life earlier this year, Stephen Stone'scompany tried to order concrete building blocks for a new homesproject, only to find he would have to wait months and importthem from Germany.
The experience of Stone, chief executive of housebuilderCrest Nicholson, typifies the industry's difficultiesin responding rapidly to government pressure for more new homesto ease a shortage and help a weak economy.
"Imagine if you haven't got raw materials like bricks andblocks and you're waiting for three months to get them. It's aproblem," Stone said.
Bricks and blocks aren't the only problem for a sector thatshrank sharply to survive the property downturn after the 2008financial crisis. It now faces rising costs, and financingconditions remain tough, on top of long-standing difficulties ingetting projects approved under Britain's strict planning rules.
With housebuilding at its lowest in about 90 years, financeminister George Osborne has launched the first part of a schemeto lend and guarantee billions of pounds in mortgages, aiming tohelp Britons buy newly built homes with relatively smalldeposits.
But the chances of his "Help to Buy" scheme drawing a rapidresponse are slim, due largely to the shrunken state of anindustry that had relied heavily on foreign workers, many ofwhom left Britain during the downturn because of a lack of jobs.
Britain is therefore unlikely to achieve anything near the250,000 homes needed each year to keep up with a growingpopulation, and critics fear this shortfall means Osborne'sscheme will fuel house prices rather than house building.
"The government hopes that we can turn the tap on right awaybut it doesn't happen that way," Stone told Reuters. "It'll takeat least four to six months for the supply chain to respond. Theconstruction industry is 50 percent of what it was. The overseasworkers have all gone home."
The government declined to comment on its expectations forthe industry.
Housebuilding in Britain has fallen to levels not seen sincethe 1920s, according to property consultancy Savills,after the largest housebuilders, such as Persimmon andTaylor Wimpey, retrenched during the downturn toconcentrate on raising profit margins rather than their sales.
Private housebuilders completed 88,000 homes last year, wellbelow an annual average of 115,000 over the past four years,Savills said.
The country's 10 biggest housebuilders, such as BarrattDevelopments, which construct about two thirds of newhomes, have not committed themselves to firm completion targets.However, some say they are aiming to sell 20-30 percent morehomes annually in the next few years.
Osborne and his department, the Treasury, have also not saidhow many more homes they want built under the scheme. Its secondphase, in which the government will guarantee loans for peoplebuying second-hand homes, will start in January.
"There are a lot of other obstacles that the government isnot only not overcoming but in some respects is making worse,"said Roger Humber, strategic policy adviser to lobby group HouseBuilders Association.
LONG WAITING TIMES
Stone's lengthy wait shows how building materials makers, such as Wienerberger, Michelmersh andHeidelbergCement's UK arm Hanson, also retrenched inBritain and continental Europe. Such suppliers have shut 19plants in the last five years as brick production halved due tothe waning demand.
About 358,000 workers have left the British constructionindustry, a 15 percent drop since 2008, government data showed.Many building materials makers are now adding shifts and hiringworkers, but say a sharp rise in production will take months.
"Our customers are going to have to be patient," said DavidWeeks, spokesman for Hanson, which plans to reopen a mothballedfactory in Cloughton, northern England, by the end of the year.
"We've been through some severe pain in the last five years;our workforce has reduced by half to about 4,000 today, andwe've lost probably 45 percent of our production volumes."
On top of this, builders say it can take up to two years tostart work on sites due to delays in gaining planningpermission. The government has tried to speed this up by givinglocal authorities more decision-making powers.
"There has been a slight improvement. The accent is on that'slight'," said Taylor Wimpey's CEO Pete Redfern.
Overall planning permissions are running at about 140,000houses a year, slightly above the 100-110,000 mark it was atpreviously, but nowhere near the 200-250,000 homes that theindustry should probably be building, he said.
PRESSURE ON SMALL PLAYERS
Small and medium-sized housebuilders, which account forabout a third of new houses, also have problems in persuadingbanks to finance their projects. Net bank lending toconstruction firms has fallen by between 4 and more than 10percent every quarter for four years, Bank of England data show.
A Federation of Master Builders survey found 90 percent of1,000 building firms questioned in late 2012 said raisingfinance was as difficult as two years ago, or even harder.
"The number of small housebuilders who are actually activeat the moment is definitely falling. Some will never startagain. Others want to - they want to get land and so on - butthey just can't get the credit from the banks," said Humber.
Building costs are also expected to be pushed up by newregulations, with local councils to charge housebuilders fees tohelp finance items such as roads and a government push for anet-zero carbon emissions standard for all new homes by 2016.
With such challenges, some have questioned whether theindustry has the capacity or even willingness to aim for the250,000 home target outlined in a 2004 government-backed reviewof the housing market.
Britain experienced housebuilding of over 200,000 a year inthe 1950s to late 1970s, bolstered by government efforts tocreate public housing, data from Knight Frank showed. Privatehousing completions reached a high of 203,320 in 1968.
"250,000 is a figment of everyone's imagination," saidMartin Warner, chief executive of brickmaker Michelmersh. "We'remiles off that."
