Reversing the decline of sme home builders

Stewart Baseley – Executive Chairman of the Home Builders Federation (HBF)

Stewart Baseley looks at what can be done to help SME Home Builders address the different challenges they face

Small and medium-sized builders make up the majority of HBF’s membership and watching many of them continue to face headwinds over the past few years, even as the sector as a whole has flourished, has focused everyone’s attention on reversing the decades long decline in SME home builder numbers.

While the home building industry has delivered an unprecedented 78% increase in housing supply over the past five years, this has mainly been due to the contributions of the largest housebuilders. However, this has not always been the case. In 1988, small developers were responsible for four in every ten new build homes, compared to just 12% today.

The decline of SMEs began in the early 1990s but unsurprisingly, the Global Financial Crisis exacerbated their diminution. In addition, a number of other pressures relating to planning, development finance and red tape has meant that the number of small developers is yet to recover.

However, if we are to reach the government’s target of delivering 300,000 new homes per annum by the mid-2020s, we need to arrest this decline and ensure all developers can perform at their full potential. Much attention is focused on the contributions of housing associations, build to rent developers and local authorities and all have roles to play, but in 2017, HBF undertook some research which found that if the SMEs that have disappeared since 2007 were replaced, an additional 25,000 homes could be built each year.

To increase the role SMEs are playing in housing delivery, we need to help them address the challenges facing their businesses. While some of these issues may be felt across the wider industry, the impacts are felt in a more acute way by smaller developers.

One of the biggest challenges relates to the planning process. In particular, a lack of resources in local authorities is causing considerable delays, especially when it comes to discharging planning conditions. While this may be an inconvenience for a larger housebuilder, they will at least have multiple other sites that they can progress in the interim. SMEs are less able to mitigate these setbacks as they may have their capital tied up in just one or two projects at a time. As a result, lengthy delays can bring their business to a halt. Therefore, it’s vital that Government and local authorities prioritise their planning departments and ensure that they are adequately staffed and resourced. With the drive to rapidly increase supply, this need is only going to become more urgent.

In addition to the concerns regarding planning, house builders (especially SMEs) can often find themselves hit by delays or unpredictable additional costs because of the actions taken by highway and utility companies. A lack of joined up working between authorities and planning departments, limited resources and late engagement are just some of the challenges SMEs face which all contribute to slowing down the supply of new homes. At HBF, we would welcome a cross-Whitehall approach to these issues to find solutions which enable developers to deliver new homes faster.

The strict availability of finance for SMEs has improved in recent years but in some cases, the terms remain challenging. However, we have welcomed the engagement of UTB and other lenders with HBF to help find solutions. We have also worked closely with Government through various departments and via Homes England to help shape some of the development finance interventions they have introduced. While imperfect, these are having some effect for some of our members. We have most recently worked with officials on the creation of a government guarantee. We’re pleased that the previous Chancellor took up these proposals, albeit in not exactly the form we had proposed. Still, we welcome the progress and the focus on SMEs.

The issues raised above are just the tip of the iceberg when it comes to the barriers facing small housebuilders. Concerns also persist concerning red tape, increasing political interference in planning decisions at a local level, skills shortages and rising build costs, to name a few. While there will be always be challenges, the scales are tipped too heavily against SMEs at present. If we are to deliver the homes this country desperately needs, we need to sustain the plurality and vibrancy of the sector by doing all we can to reverse the decline of small home builders.