We must continue to roll back the barriers facing SME house builders

Posted On: 
12th September 2018

In FMB’s latest House Builders’ Survey, more SME house builders said that they expect skills shortages will be more of a constraint than access to finance over the next three years, says Brian Berry, Chief Executive, FMB.

In FMB’s latest House Builders’ Survey, number of firms reporting the severe shortage of skilled tradespeople in the construction sector as a barrier to growth rose compared to last year, says Brian Berry, Chief Executive, FMB.
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The relative decline in the numbers and output of small and medium-sized (SME) house builders in recent decades is now a widely acknowledged dimension of the housing market in England and the wider UK. This is a phenomenon that goes to the heart of discussions around housing supply. As such, the results of the FMB’s latest House Builders’ Survey should be of interest to all those who wish to expand, diversify and speed up the supply of new homes. Now in its seventh successive year, this survey enables us 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.

Although many SME house builders have been able to take advantage of the relatively buoyant housing market of recent years, the latest figures from the NHBC for 2017 show no sign of an increase in the share of output from smaller firms, and some signs of continuing weakness. 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 2017 remained unchanged from 2016 at 23 per cent. At the same time, the number of firms registered with NHBC that build up to 30 units per year fell again, although it is not possible to be certain whether this reflects an aggregate fall in numbers across the industry or a fall in NHBC registrations among firms of this size.

The key themes which have emerged from this survey in preceding years – access to finance, availability of small sites, the skills crisis, and the process of obtaining planning permission – continue to feature prominently. The Government’s Housing White Paper published in February 2017 noted that “small and medium-sized house builders regularly cite land, planning and finance as the major barriers to expansion”, and indeed, these three remain the most widely cited barriers to supply. In that sense and others, this year’s results show a high degree of continuity with previous years’ results.

However, some changes over time can be discerned. Concerns over access to finance remain very real for many, but for fewer than in previous years, and assessments of lending conditions are more positive this year than they have been previously. In this light, it is not surprising that concerns over finance are increasingly related to the terms on which finance can be accessed, rather than straightforward refusal of loans. At the same time, while access to land remains the most widely-cited barrier to supply, the number of those who feel that local authorities and planners are now taking small sites more seriously has doubled over the past year.

Both the consistency of key concerns and the signs of progress in some areas need to be interpreted in the context of the current policy environment. The recognition of the barriers facing SMEs set out in the Housing White Paper has been accompanied by a range of policies and initiatives designed to tackle these constraints. The new National Planning Policy Framework (NPPF) includes improved policies on small sites, which should certainly have a positive impact on the sector in the years to come. The new ‘Permission in Principle’ offers a more streamlined planning route for small sites, which is well-received in this survey. In addition,  the billions of pounds of recoverable loan finance have been targeted at SMEs through the Home Building Fund. These positive approaches may well explain some of greater optimism around the treatment of small sites. However, the results also suggest that Government policy would do well now to focus on improving loan-to-value ratios, and that significant increases in supply could follow from doing so.

Further to this, the number of firms reporting the severe shortage of skilled tradespeople in the construction sector as a barrier to growth rose compared to last year. The UK construction sector is extremely reliant on EU labour. Nine per cent of workers in the sector were born in the EU and Brexit and the end of free movement threatens to further worsen the skills shortages we already have. When asked to look ahead over the next three years, more SME house builders said that they expect skills shortages will be more of a constraint than access to finance.

These constraints to supply are deep-rooted and structural, and defy quick, simple remedies, but there are signs of progress here. The FMB will continue to work with the Government, the Opposition and the rest of the industry to make sure that we continue to roll back the barriers facing SME house builders.