The need for new house building
New house building brings enormous economic and social benefits and it is widely accepted that there is a pressing need for the UK to build many more homes than it is currently doing.
The number of households in England alone is growing at the rate of over 220,000 each year, yet only 124,520 new homes were built in England in 2014/15. The last time more than 200,000 homes were built in a single year in England was in 1988.
The decline of SMEs in the house building industry
An analysis of NHBC statistics shows that in 1988, firms completing less than 500 units per annum delivered two thirds of all new homes in the UK. However, the number of small and medium sized (SME) house building firms has declined significantly since then and in 2014 only 30% of new homes were delivered by firms of this size. This trend has accelerated over the course of the economic downturn, with the number of SME house builders in operation having halved since 2007.
This represents a serious loss of capacity in the UK house building industry which must begin to be reversed if we are to start building the number of new homes we need. We need to enable growth in output among existing firms, an increase in new entrants to the industry and make better use the of the large numbers of skilled small contractors who would have the capacity.
In order to do this, we need to address the major barriers and structural constraints which continue to operate on SME house builders.
- Access to finance for small developers and new entrants
- The availability of suitable and viable small sites
- Disproportionate cost, complexity and delay in the planning system
- Excessive demands for developer contributions placed on small sites
FMB House Builders' survey
The FMB conducts a yearly survey of its house builder members. Download The FMB's 2019 House Builders' Survey (PDF, 3.5MB)
Some of the key findings of the 2019 Survey are:
- The average score given for current buyer demand in the housing market (out of 5) was 2.9, down from 3.14 last year, and this is expected to fall further to 2.75 next year. This represents a drop of 8% in demand for new homes.
- Almost half (48%) of small house builders attribute the fall in buyer demand to a lack of consumer confidence.
- 'Lack of available and viable land’ was the most commonly cited barrier to increasing output (43% of respondents) for the fifth year in a row.
- In second place as barriers to increasing output came ‘the planning system’ (42%) and in third was ‘lack of finance to the company’ (39%).
- The percentage of respondents citing a shortage of skilled workers as a major barrier to growth fell to 26% from 44%.
- Asked to rate current lending conditions to SMEs for residential property development from zero to five, the average score was 2.15; this is up from 2.03 last year, and is the highest score for this measure since the question was first asked in 2013.
- 16% of respondents reported improved lending conditions over the past year, with 14% reporting deteriorating lending conditions; 70% reported no change.
- 39% of respondents stated that they were involved in sites which were stalled for financial reasons; this was down from 47% last year.
- 'Poor loan to asset value ratios' was rated as the most significant finance-related barrier for the second year running ahead of ‘fees charged on new or existing loans’. The level of concern over loan refusals has risen to the highest level in three years.
- 51% of respondents said that there were sites which they would otherwise be interested in but which they believed would be nonviable due to likely Section 106, Community Infrastructure Levy (CIL) or other obligations; this is down from 62% last year.
- 54% reported that the number of small sites opportunities is, if anything, decreasing, though 26% said that small sites are now being taken more seriously by planners and local authorities.
Development finance for SME builders
Accessing development finance for SME builders and developers is often not easy. While the FMB continues to work with the Government and the finance industry to improve this situation, we also want to give our members the information they need to give them the best chance of accessing the finance they need. That is why we’ve launched a new guide with UK Finance aimed at providing a fuller understand of development finance, the options available and the processes you will likely need to go through.
The guide offers practical advice to smaller house builders on how they should present their project to lenders to improve their chances of success, as well as the alternative options available if an application for finance is turned down. It also offers smaller house builders advice on how to make the most of the diverse range of finance options available including challenger banks, private equity, crowd funding, finance brokers and Government-supported funds.