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SME housebuilders turn corner but remain constrained

Since the beginning of the financial crisis in 2007, the story for SME housebuilders has been mainly a downcast one.

Thousands of firms went out of business never to return, or diversified out of housebuilding altogether, driven out by a collapse in demand and the disappearance of development finance.

Given this recent history, the Federation of Master Builders’ 2015 House Builders Survey shows some positive trends emerging, a slight improvement in access to finance, and the ongoing re-entry into the housebuilding business of small builders.

At the same time, it paints a clear picture as to the continuing constraints on growth.

A stand-out statistic from the survey is the increasing number of small housebuilders planning for growth over the next few years. This is the kind of progress we’ve been hoping for.

A vibrant and growing SME housebuilding sector is crucial to the long-run capacity of the industry. We need to do more to encourage and enable this.

SME finance easing

Access to finance has remained the most commonly cited barrier to increasing supply by FMB members since we began running this survey four years ago.

Despite a clear resurgence in the housing market over recent years, major banks have remained highly reluctant to lend for small housing development projects.

Encouragingly, this year’s survey was the first in which access to finance was not the number one barrier to building. We hope this marks a turning point.

Government interventions such as the Builders Finance Fund and Housing Growth partnership are part of this improving picture, but we will continue to urge the government to explore ways of ensuring there is sufficient finance flowing to this subset of firms.

“At a time where the country is faced with a major housing crisis, it seems inexplicable to be inhibiting capacity in such a way”

Clearly, however, this issue has not been resolved. Major banks remain reluctant to lend to smaller builders, stymying their ability to deliver new housing.

More than half of our respondents have an interest in sites that are viable but have stalled due to a lack of finance. 

Our findings show that access to finance most severely affects firms with the smallest turnovers (under £1m), those developing the smallest sites (fewer than five units), and those looking to enter the development game and bring forward developments.

The regrettable recent High Court ruling overturning a 10-unit threshold for affordable housing contributions is a further issue.

Nearly half (41 per cent) of respondents said there were sites they would otherwise be interested in, but which they believed would be unviable due to likely section 106 or Community Infrastructure Levy requirements.

Planning system needs more work

At a time where the country is faced with a major housing crisis, it seems inexplicable to be inhibiting capacity in such a way.

Furthermore, our survey finds that the planning system is still too unresponsive and bureaucratic in a way that disproportionately affects smaller developers.

Streamlining the planning process further, where possible, must be high on the government’s agenda.

We know the need for housing exists, as much as we know the skills and entrepreneurial spirit is present. Smaller housebuilders simply need the tools to deliver.

David Cameron recently spoke of his belief that “what energises many markets are new insurgent companies, who break monopolies and bring in new ways of doing things”.

Let’s hope this philosophy is applied to our industry, where it is very much needed.

Brian Berry is chief executive of the Federation of Master Builders

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