It’s great to see the government tackling the housing crisis by implementing changes to help build the new homes we so desperately need. That’s all well and good but if house builders can’t actually afford to build them, how can they expect to meet their house building targets?
We take a look at the challenges facing small to medium (SME) builders and how the government plans to tackle them.
What are the main challenges and what help is available?
To make it easier for local authorities to meet their housing targets, there has been a tendency within the planning system to focus on the larger strategic sites as opposed to the smaller infill sites that SME’s rely on. Not only that but the costs involved in producing new homes that comply with government regulations such as Zero Carbon Homes and Part L energy conservation standards, make it increasing more difficult for SME builders to fund the project themselves. The stake is much higher for the smaller developer than volume house builders, who tend to have private equity backers or shareholders to fall back on. It can cost up to £50,000 to submit a planning application for a smaller site and if a scheme gets blocked in the planning process it could mean disaster for a small house builder who will find it hard to redeploy capital.
The recent relaxed planning rules proposed by the government will mean automatic planning permission granted on suitable sites, eliminating the uncertainty to the builder and enabling them to seek finance for the other elements of the application. Furthermore, the decision to scrap zero carbon homes could mean a level playing field for SME builders who were struggling to build homes to meet the energy efficiency targets.
Access to finance is one of the biggest challenges smaller house builders face and recent stats from the Department for Communities and Local Government (DCLG) show that construction of between 1 and 100 units a year has decreased from more than 12,000 to under 3,000 new builds.
The government have committed to providing lending opportunities for smaller builders developing sites of between 5 and 250 units until 2016/2017 through the Builders Finance Fund. This will help to unlock sites that have ground to a halt because funds have run out or builders have been denied finance.
The launch of the £100 million Housing Growth Partnership (HGP) initiative has also been introduced to recognise and support the important role of the SME house builder, in keeping the country building. The scheme aims to provide SMEs with much needed funding for new projects to help provide an additional 2,000 new homes and help develop their businesses. By supporting house builders to expand their businesses it will help create opportunities for recruitment and training of skilled workers helping to narrow down the skills gap in the industry.
Find out more about this scheme and how to apply for funding.
The procurement process is often a headache for SME’s wanting to build properties on public sector areas of land, particularly those with limited administrative resources. It is also extremely difficult for smaller house builders to show their figures in terms of an annual turnover that is substantial enough to warrant building on that site. Thus potential clients in the public sector are more reluctant to award them the contract especially when it comes to providing social housing.
The Homes and Communities Agency (HCA) have tried to make it easier for SME builders to navigate and progress through the procurement process. In addition to this the government plans to free up more brownfield land, which could be an opportunity for smaller house builders, although there is uncertainty as to how much they will be able to access.
The outlook for smaller house builders is still relatively uncertain but there are opportunities available which will hopefully make it easier for them to tackle the housing crisis one small build at a time.
By Frzana Ferguson
Please Note: Every care was taken to ensure the information in this article was correct at the time of publication. Any written guidance provided does not replace the reader’s professional judgement and any construction project should comply with the relevant Building Regulations or applicable technical standards. However, for the most up to date LABC Warranty technical guidance please refer to your Risk Management Surveyor and the latest version of the LABC Warranty technical manual.