Working with an SME developer client recently highlighted for me one of the key problems faced within the industry. Consulting on a large and company defining land purchase in the South East, on which was proposed a pioneering, boundary pushing sustainable development of new homes with aesthetically beautiful design.
A vast amount of work was put into the above, and all seemed agreed from vendors to planners, when at the last moment, the vendor received a higher offer from one of the large housebuilders and took the money. Where could have stood an exciting example leading the way on how we can truly build for the future, will now no doubt stand a homogenized soulless development, providing homes but little else.
SMEs need support in all ways to be able to achieve and drive the industry forward in ways it surely must. 90% of all home constructions since 2008 have been delivered by large corporations.
The UK government through Housing England have set out to deliver 300,000 new homes each year by 2025. The public appetite shows no signs of abating, the British are simply obsessed by property. A growing population will continue, and new homes must be provided. The question we need to ask ourselves is do we want this to be provided by a handful of large housebuilders, or do we want to encourage and support SME developers who will provide true innovation, character to our homes, real progress in sustainability, and a much needed injection to local businesses and jobs in a post Covid-19 economy.
In my opinion, there are three key areas that need to be resolved to allow SMEs to flourish and re-establish themselves as a key component of the UK’s housebuilding future.
Planning – the complexity and painfully slow nature of the planning system in the UK is well known, and has been the subject of much debate at all levels of late. The average time it takes for a standard housing scheme to go through the planning system is five years, and there has not been a significant update to the planning system since 1947. After an encouraging proposal by the government to introduce planning reforms, these have now been shelved as of September 2021. While nobody wants to destroy the country’s green spaces and build where not appropriate, surely we can all agree that a new system is required, and the correct type of building is crucial and necessary. In the hands of a government whose main concern is protecting votes, the future in this area seems slow and protracted.
Funding – the last decade has seen a lack of appetite, particularly amongst big banks, to lend to SME developers for what they perceive as high risk residential development. However, while many SMEs cite the lack of funding availability as a key reason limiting their growth, we have found that many are also unaware or misunderstand the funding that is available to them. The last few years have not only seen an increase in the number of smaller lenders and family offices looking to lend to SME developers, but also an increase in the professional and institutional investors who will joint venture projects and provide the equity needed to purchase land for development. The key here is to facilitate a developer who may previously have built maybe one or two schemes a year, and to provide the resource to take this to five or six a year, providing growth, creating jobs, and delivering more homes.
Costs – the UK has been in the midst of a perfect storm, partly of its own making with Brexit and partly due to the pandemic. The combination of these factors has resulted in two major outcomes impacting developers and housebuilders. Firstly, swathes of European workers have left these shores, leading to a labour shortage on sites and increased costs with this limited supply. Secondly, materials are now in less supply, and increased demand has forced the prices to rocket. Most impacting here are timber and steel, however the problem trickles through the entire supply chain. Increased cost therefore reduces profit, and reduced or even uncertain profit impacts the ability to secure funding. We therefore have SME developers with appetite to take on more sites and grow, but spiralling costs, limited labour, and therefore inability to secure funding means that they cannot buy the land and build the homes we desperately need.
Now is the time to support and encourage SMEs in all industries to thrive as it is these ambitious high growth companies that will drive innovation, job creation, and economic success. SME developers were once a large part of the UK housebuilding landscape, and there is no shortage of appetite amongst them to get back there again, the key is support from government and funders to pave the way and have a chance of hitting the homes targets that need to be met.
Patrick McCreesh – Partner – Vantage Property
Vantage provides funding, joint ventures and strategic advisory services for developers and property professionals.