SME housebuilders key to beat housing crisis

After two decades of undersupply and just over 128,000 new build housing completions in 2011-12, we have a serious housing crisis. This is exemplified most recently by the report by Alan Holmans for the TCPA, showing a need for 243,000 additional homes per year.

The consequences are both economic and social; rapidly rising rents, growing local authority waiting lists and changing occupancy patterns, such as a 600,000 increase in the number of young adults returning to live with two other adults (largely students returning home after university unable to afford to live independently).

As a PLC director of a major house builder, I’m often asked why the industry appears incapable of delivering enough new housing. Throughout the credit crunch it was accepted that the lack of accessible mortgage finance heavily constrained demand and throttled supply. Yet with an evident upturn in the housing market, along with government assistance through Funding for Lending and Help to Buy, shouldn’t we see a significant rebound in housing delivery?

Since the abandonment of public sector housing delivery after the seventies, the UK has relied on the private sector to deliver the majority of new homes. Over the last 30 years, delivery has averaged 120,000 private new homes per annum. With RPs and house builders delivering another 25,000 to 30,000 affordable homes per annum, in the absence of public housing the industry has averaged only 140,000 to 150,000 new homes a year.

In the eighties, SMEs delivered nearly 40% of all new homes. Today that proportion has dropped to below 25%

With encouraging signs of increased output and major house builders indicating potential growth capacity of between 10% and 20% a year, we could rebound over the next four years to more average levels of supply. However, the structure of the industry raises doubts over its capacity to grow much further.

In 1988 there were over 12,000 SMEs (delivering 1 to 100 dwellings p.a.), 260 regional and 13 national house builders (2,000 units plus p.a.). Now, according to NHBC statistics, SMEs have plummeted to only 2,800, regional house builders to 95 and national house builders to eight.

In the eighties, SMEs delivered nearly 40% of all new homes. Today that proportion has dropped to below 25%, while the main eight house builders now account for nearly 48% of all supply. It is therefore clear that, without a major rebound in the number of SMEs and regional house builders, or a major additional contribution from Build to Rent, supply will be heavily constrained.

In my view, over the last 10 years the cost and uncertainty of planning and the increasing technical complexity of housing have combined to force SMEs out of business. New initiatives such as CIL, which could demand up-front contributions of £30k+, will only compound the challenge. Planning complexity has become a huge barrier to entry in the UK housing market and it is far from clear how any company, large or small, could cope with the cost and overhead investment required to assemble a reliable consented land bank.

It is also difficult to see how, in the face of Help to Buy, which is supporting increased sales volumes, and the wall of overseas capital seeking to buy new open market housing in London, Build to Rent will make a significant contribution to housing supply within the foreseeable future.

In summary, without a dramatic increase in affordable housing delivery or the re-introduction of public housing, the significantly reduced number of SME’s and regional house builders places an effective cap of circa 150,000 dwelling per annum on the industry, despite the growth potential of the national house builders. This should be a worry to us all, as the barriers to entry into this industry remain a challenge and the resulting economic and social consequences could be very serious indeed.

Chris Tinker is executive board director and regeneration chairman at Crest Nicholson