Surveying the industry

Brian Berry, chief executive of the FMB, explains the company’s annual House Builders’ Survey, and explores what the Government could do to alleviate the issues found.

Most policy makers in central and local government now accept that we will struggle to meet housebuilding targets, unless we diversify the supply of housing and once again enable the growth of small and medium-sized (SME) housebuilders. In the late 1980s, two-thirds of all new homes were built by small local housebuilders, but this now stands at less than one quarter. This represents a significant loss of capacity, diversity and healthy competition in our industry. Reviving the fortunes of SME builders undoubtedly has a key role to play in delivering the 300,000 homes needed every year in England alone.

The Federation of Master Builders’ (FMB) House Builders’ Survey is an annual snapshot of the business environment SME housebuilders are operating in. It reveals what barriers are preventing small housebuilders increasing their output. This research is of real interest to policy makers who need an industry that is growing in capacity and diversity rather than dwindling.

The survey has consistently shown that the most prevalent concern for SME housebuilders is the lack of available and viable land, which for SME builders means small sites. In fact, according to the 2018 survey, 59 per cent of SME housebuilders cite the lack of suitable sites as a barrier to increasing their output, making it the top barrier for four years in a row. Worryingly, nearly two-thirds of respondents believe that the number of small site opportunities is actually decreasing.

Small and medium-sized sites can make a huge contribution to meeting the housing requirement of an area, and are often built out relatively quickly. However, there is a tendency for local authorities to concentrate on the delivery of new homes on large sites mainly suitable for large housebuilders. Recent reforms in the National Planning Policy Framework (NPPF)

are fundamental to tackling this. As part of the reforms, a new section of the NPPF stipulates that local planning authorities must identify sites no larger than one hectare sufficient to deliver at least 10 per cent of their housing delivery on sites. By making good on this requirement, local authorities will put in place an ongoing pipeline of opportunities to smaller firms. The survey gives some grounds for optimism on this score, finding that 40 per cent of builders believe that, perhaps as a result of the changing policy landscape, small sites are being taken more seriously by planners and local authorities.

Another key issue is the problem SME builders face accessing the finance they need to build. The results of the latest survey show that nearly half (46 per cent) of SME builders believe problems involving finance are a major barrier to their ability to increase their output. “Poor loan-to-asset-value ratios” was rated as the most significant finance-related barrier ahead of “limitations on business overdraft facilities” and significantly ahead of “refusal of loans”. This suggests that the terms on which finance is available is now the most pressing finance-related concern.

There have been initiatives put in place to address access to finance, such as the Government’s Home Building Fund that was created specifically to improve access to finance for small housebuilders. Though there will always be limits to the reach of a scheme-by-scheme loan fund administered by a Government agency, Homes England deserve credit for the fact that the Home Building Fund has been better tailored to smaller builders. It has generated a higher uptake than any previous scheme and has undoubtedly been a real help to the sector.

This year’s survey suggests how Government policy could now go further in improving access to finance for SME builders in a way that would pay most dividends in terms of delivering new homes. The survey suggests, not only that poor loan to asset value or loan to cost ratios are now the biggest financial headache smaller

builders face, but that, if the currently typical offer from lenders of 60 per cent to 65 per cent of project cost rose up to 80 per cent, then SME builders would be able to bring forward on average 40 per cent more new homes. If the Government can design policies that would allow this gap to be bridged, then it stands to reason that output will rise.

The acute shortage of skilled labour in construction is also fast rising up the list of concerns for SME builders and developers. The percentage of respondents citing a shortage of skilled workers as a major barrier to growth rose compared to last year. The UK construction sector is particularly reliant on EU labour, with just under one in 10 workers in the sector having been born in the EU.

What’s more, EU migrants are heavily concentrated in London, where one in three construction workers were born in the EU, and fewer than half were born in the UK. The skills shortages will likely get worse still. Brexit and the end of free movement threatens to further exacerbate the skills shortages we already have. It is unsurprising therefore that, when asked to look ahead over the next three years, more SME housebuilders cited skills shortages as a likely barrier to growth than access to finance. While we wait to hear what the post-Brexit immigration system will look like, we are hopeful that the Government will listen to the needs of the sector.

The results of the FMB’s 2018 House Builders’ Survey were published in early September and launched in Parliament. Secretary of State for Housing, Communities and Local Government James Brokenshire MP spoke at the launch and Melanie Onn, Shadow Housing Minister spoke on behalf of the opposition. The launch was sponsored by JCB and JCB Finance.

To view the survey in full visit: