To judge by the fanfare, housing minister Brandon Lewis may have expected small house builders to be delighted when he announced his new Housing Growth Partnership over the summer. The industry, however, appears much more muted.
Lewis says the £100m HGP will “help small builders to play their part” in the improving construction sector by investing in 50 projects to provide a total of 2,000 homes. There will be cash, provided 50:50 by government and Lloyds Banking Group, as well as practical assistance such as help with mentoring.
With strict cost criteria and limited deadlines – delivering homes, handily, just in time for the 2020 general election – the response from those at the sharp end has not been generous.
This initiative, like others before, is dismissed as “simply window dressing and all aimed at affordable housing provision” by Tony Dowse, chair of builder Environ Communities, a firm that typically constructs 35 homes a year.
Millwood Homes, which builds 75 to 100 homes a year, is scarcely more enthusiastic. “Unless restraints are lifted by banks, it will continue to be difficult for smaller companies to develop sites. The bigger the scheme, the more funding required,” says Millwood managing director John Elliott.
That may be the problem in a nutshell: the initiative could offer genuine assistance to 50 specific developments – but will it solve longer-term problems such as limited availability of funding and skills and planning delays that have contributed to a decline in the number of UK firms building one to 100 units annually from 12,000 to fewer than 3,000 in the past 25 years?
In reality, the return of post-downturn confidence in the housing market, rather than the government, may provide the funding required for some resurgence of small developers.
According to SPF Private Clients, there are 45 borrowing options for SME builders, which includes firms building one to 100 units annually (small) and 101 to 2,000 units annually (medium).
“This is in sharp contrast to the restricted market following the downturn. Banks previously preferred major builders but are now prepared to advance in the region of 60% of a project cost to smaller players,” says Nick Vaughan, Savills’ director of residential sales.
“Finance for up to 75% of a project is now available from about 20 specialist development lenders, while debt funds, which are prepared to advance the full cost of a project, are increasingly looking beyond the M25 and further afield,” he says.
What remains problematic, and not addressed across the construction sector by the new HPG initiative, are those old chestnuts – a shortage of skilled workers and slow planning.
Savills’ research division says the reduced availability of labour hits smaller house builders the most as they have less capacity to train new people. It forecasts the “small” sector’s output to rise by 17% from 14,900 in the year to the end of Q1 2015 to 17,500 in 2020.
Yet even that 2020 number is still below pre-recession levels, and does not come close to the strength of the small builder sector a generation ago, as the government wants.
“What’s really needed is improvement to the planning system, to speed up the process for developers and provide more available sites for purchase,” says Andrew White of Colliers International’s residential development team.
Small – and for that matter larger – developers continue to complain that an increasingly long validation list for an application involves more costly consultants than ever before.
“Speculating on a planning consent can lose £100,000. The pre-application procedure is a complete farce,” says Environ’s Tony Dowse.
He says that at his company’s Minchinhampton scheme, which consists of just five houses and two apartments, extending a previous retirement housing scheme constructed by another builder, there was a successful pre-application worked out with a council officer.
“The officer left but the new case officer opposed the scheme. At that point we had spent £75,000 based on the original pre-application. It is accepted that the committee might not agree but it is not reasonable that officer advice can be turned on its head,” says Dowse.
Such complaints are scarcely new and are clearly costly to any developer. But to an SME player the effects on scheme viability, and company profits, can be severe.
Help in this more fundamental area, it seems, may be more welcome than a scheme like HGP, which will offer far more limited, albeit higher-profile, assistance to a sector still struggling to recover from the downturn.
Housing Growth Partnership: how it will work
HGP will invest directly in residential projects. Applicant builders must have:
• a proven track record in land buying, design, marketing and sales of new homes;
• delivered 10 to 100 single-unit completions for each of the past three years;
• a satisfactory health and safety record.
Its criteria to invest from £500,000 to £5m in projects are:
• a development timescale of no more than 36 months (48 including planning);
• a scheme size of five to 75 units;
• a GDV of between £750,000 and £12m;
• outline planning consent at time of investment;
• construction start within 12 months of investment.
The investment structure is:
• a contribution in the form of cash and/or development land;
• equal contribution to householder “to ensure alignment of interests”;
• no government provision of debt finance.
Source: Housing Growth Partnership Ltd
