Since 2008, the average housing scheme has increased in size by 17% (Image: Dreamstime)
The SME share of the housebuilding market has fallen by more than half since 1988. Richard Beresford explains why the housing sector needs the flexibility and competition that smaller builders can offer.
Richard Beresford
To fix the current housebuilding crisis, the industry needs a supply chain that is competitive, flexible, sustainable – and diverse. But the sector continues to be dominated by a small number of large players.
Since 1988, the market share of small and medium-sized (SME) builders has decreased from 57% to 27%.
Over this period, small builder registrations by the National Housing Building Council (NHBC) declined sharply from 12,000 to 3,000. Between 2007 and 2009, a third of SMEs ceased building homes.
The Government has already recognised things need to change and, in early 2017, its Housing White Paper heavily leaned on the experiences of the non-volume sector and committed to diversifying the housing market.
Once integral to organic community growth, SMEs have been suffocated by policy changes adding new layers of bureaucracy and making it difficult for them to grow or even operate. Examples include the introduction of the ‘plan-led’ planning system and an increased list of individually chargeable planning conditions and developer contributions.
Planning barrier
Plan-making has become a major barrier for SMEs, as fewer small and medium-sized sites are included in local authorities’ five-year land supplies. Since 2008, the average housing scheme has increased in size by 17%.
Without a pipeline of work, the risky and slow planning process weighs heavy on SME developers. Government statistics show that 43% of minor developments are subject to local authorities’ requests for extensions of time or environmental impact assessments.
NHBC Foundation surveys further reinforce that the planning process remains the biggest growth inhibitor for SMEs, with land costs and access to finance coming a close second and third.
While access to finance has improved, the drawing down of finance is predicated on achieving a planning permission. This makes it very difficult for new players.
Affordability and choice
For home buyers, a less diverse housing market means reduced affordability and more restricted choice. With fewer players building local homes, house prices have risen considerably and the number of more specialised housing types, such as bungalows, is at an all-time low.
Between 2000 and 2008, the average UK house price rose by £101,000. Since 2013, prices have risen by £51,000. Over the same period, house prices in London rose by £225,000, with the capital’s rents increasing by 214%.
Local authorities, who were once guided by developers building for local needs, are now responsible for deciding what that need is. When assessments under-appreciate a sector, long-term impacts can be grim.
For example, bungalows are often assessed as requiring 24-hour care, rather than facilitating independent living. This confused approach meant only 2,000 were built in 2017, compared to the 28,000 in 1987.
For local developers responding to market requests, a lack of representative policy often means a need to circumvent the local plan, through a windfall site – or a long and expensive battle with planners.
What SMEs can offer
Despite the difficult environment, SMEs are already the partners of choice for housing associations, councils, community land trusts and self-builders. They understand the planning process, engage with clients and are more likely to build tailored homes.
Losing them does not just reduce the number of market homes, but the opportunity to diversify the housing stock.
Many SMEs feel indignant at the suggestion that homes are not built to high enough standards. Members of the House Builders Association, which represents the SME sector, readily express frustrations that quality debates focus on a few large players, instead of best practice delivered by the wider industry.
But it is not just the quality of housing, innovation, expertise and local knowledge that SMEs bring. It is also regional investment, infrastructure upgrades, place-making and increased delivery speed.
Working within a 15-mile radius of their head office, construction SMEs train and retain over 66% of apprentices. They sustain the wider supply chain and consequently the many jobs and businesses playing a role in tackling the housing crisis in growing regional economies.
Already building the homes people like in the places where they want them, SMEs need a level playing field to shine. They are not just house builders, they are an indicator of how healthy the house building industry is. The housing crisis cannot be solved without them.
Richard Beresford is chief executive of the National Federation of Builders, which includes the House Builders Association as a constituent body.
