Small resi schemes need to make up a greater slice of the pie

COMMENT: There’s a small site providing seven new homes about 200 yards at the end of my road. I pass it every day on my commute to work and have watched its progress from demolition to completion over the past 24 months.

It has got me thinking. Over the past decade, according to EG’s Radius Data Exchange, the capital has averaged between 20,000 and 25,000 units completing each year, against a target of 42,000. A target soon to rise 65,000 per annum.

Being generous, that means we’ll need another 40,000 units completing each and every year on top of what we’ve been delivering, or another 5,714 schemes similar to that small site I walk past every day. Each and every year. On top of what we’ve been doing. And that’s just to meet current demand.

At the same time, over at the 470-unit Fulham Riverside in south west London, Barratt has halted construction, “largely owing to a downturn in the London housing market”.

The housebuilder said that carrying on in line with the original construction programme would “substantially heighten the prospect of Barratt London having unsold stock, which clearly would not be commercially attractive”.

And that is essentially the crux. There is a demand and need for more homes, but at a price Londoners can afford.

The GLA has realised that an over-dependence on large schemes such as Fulham Riverside won’t increase delivery. Market conditions and absorption rates across the return on capital model are outside of its control.

EG data maps London Plan’s ‘small sites’

So, encouragingly, within the draft London Plan it has given a presumption in favour of small schemes. This, it says, will be directed at schemes of 25 homes or fewer that are within 800m of a tube station, rail station or town centre boundary, or with a PTAL rating of 3-6.

How much impact this will have and what the ramifications are from a local borough level, especially those across outer London where demand is holding up, remains to be seen. It is, however, a clear indication from the GLA of where it thinks the market should be heading.

For context, EG’s Radius Data Exchange reveals that over the past 10 years, a total of just over 28,000 homes have been delivered across London through schemes of 25 units or fewer.

SMEs need a helping hand

Those figures show that small sites can and should make up a much greater contribution to London’s housing delivery going forward but also that the SME housebuilders have a long way to go and need a whole lot of help along the way.

To paraphrase Tony Pidgely at MIPIM this year: “The SMEs don’t stand a chance, there’s far too few of them in the market. Why are they not here anymore? The banks won’t lend to them. That is their number one problem.

“They have to borrow from the money men, not the banks, and get far worse rates. We need to persuade the government to help those SMEs. In Surrey, when I was starting out, in the late 1970’s, I had 40 competitors. Today, they’ll be lucky to have two.”

Khan distributes GLA housing funds

While finance is obviously an issue, so too is the planning system. According to Radius Data Exchange figures, some 3,094 homes across 303 schemes were completed in 2017 but 1,743 homes in 160 schemes were refused planning consent.

It will be interesting to see how the “presumption in favour” policy from the GLA works in practice. EG will certainly be keeping a close eye.

Along with planning policy and the £3.1bn housing fund handed down from central government, London mayor Sadiq Khan along with his deputy James Murray and the GLA certainly have levers they can pull.

Grants, subsidies, and/or favourable debt arrangements in order to help out those SME developers, along with a “can-do” attitude at those sometimes tricky, town centre in-fill sites, are a must.

You never know, in 40 years’ time, one of those developers starting out today might be building around 4,000 new homes per annum, just like Tony Pidgely and his Berkeley subsidiaries.

EG’s Radius Data Exchange threshold: