Lack of land and lending is blocking new homes, FMB research reveals

Posted On: 
12th September 2017

A lack of available small sites and a lack of finance top the list of barriers to SME house builders increasing their delivery of new homes, according to new research by the Federation of Master Builders’ (FMB).

Access to finance remains a major problem for the majority of small builders, with over half of them (54%) saying it is a major barrier to their ability to build more homes - up from 50% in 2016.
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The decline in the numbers and output of small and medium-sized (SME) house builders over recent decades has been well established. This phenomenon is of real interest to policymakers and all those seeking to understand the various ways in which we might go about expanding the supply of new homes.

Today, the Federation of Master Builders has brought to light some of the key issues in addressing this problem in its annual House Builders’ Survey. This survey, now in its sixth successive year, aims to build a more detailed understanding of the business environment these firms face, to ascertain how this might be changing over time, and to garner their views on key issues.

Though many SME house builders have been able to flourish and expand their output in the relatively buoyant housing market of recent years, the most recent figures from NHBC for the calendar year 2016 suggest that the aggregate picture is one of, at best, limited recovery, and at worst, of further relative decline. The proportion of new homes being built by firms building fewer than 500 units per year (a standard shorthand for medium-sized house builders and smaller) in 2016 fell below a quarter for the first time ever.

Access to finance remains a major problem for the majority of small builders, with over half of them (54%) saying it is a major barrier to their ability to build more homes - up from 50% in 2016.

Brian Berry, Chief Executive of the FMB, said: "Almost a decade after the financial crisis, access to finance for small house builders is getting worse instead of better. The results of the FMB House Builders’ Survey suggest a slight worsening in the problems these firms face in accessing the finance they need to build. Assessments of lending conditions to SME developers were down slightly from 2016, the first fall in this measure since 2013. Small house builders express generally positive views of some recent Government initiatives in this area, such as the Home Building Fund, but we clearly need to double down on these efforts to make sure that SMEs have access to the finance they need to build Britain out of its housing crisis.”

In addition to this, concern over skills shortages continues to rise fast up the list of barriers to expansion and responses suggest that, in the short term at least, the Brexit process could exacerbate this further.

“If we get it wrong, Brexit and the end of free movement could further exacerbate the skills shortages we already have. The survey finds one third of SME house builders currently employ EU workers and this rises to 70% in London and the South East. The potential impact of post-Brexit immigration changes is therefore a cause for concern among small house builders. That’s why it’s so important that the Government introduces a transitionary period that allows the UK house building sector to gradually wean itself off high levels of EU labour,” remarks the CEO.

Other key findings of the survey were:

  • A lack of available and viable land is the most commonly cited barrier (62%) to increasing output and 54% believe that the number of small opportunities for small site development are decreasing;
  • 42% of SME house builders said that a shortage of skilled workers is a major barrier to their ability to build more new homes, and this rises to half (49%) when asked to look ahead over the next three years;
  • Half (49%) of SME builders view the planning system as a major constraint on their ability to grow and ‘inadequate resourcing of planning departments’ was again rated as the most significant cause of delay in the planning application process.

Berry asserted that the research confirms just how vital it is that the Government acts on key proposals in the Housing White Paper, saying: “Nearly two thirds of SMEs say that the lack of available and viable land is a major barrier to increasing output, the most commonly-cited barrier for the third year in a row. More worryingly still, over half say that the number of available small sites is, if anything, decreasing. The White Paper quite rightly emphasises the need to diversify the house building sector so it is less reliant on a small number of large house builders. In order to do this, we need the Government to make good on its proposals to improve the availability of small sites and speed-up the planning process for small sites.”

Read the full report here.