However, much of the increase is due to larger house builders with the number of smaller to mid-sized (SME’s) house builders declining over the years.
One reason for the decline in the number of SME’s in the market is because of the complexities and the associated costs of planning and regulatory systems. Another reason is the lack of finance available, in the main owing to the risks and delays involved at the planning stage which means that terms offered by lenders for borrowing by SME’s serve to restrict growth.
What can be done to help SME builders? This has been addressed in a report ‘Reversing the decline of small housebuilders’ [Home Builders Federation (2017, Reversing the Decline of Small House Builders)]
Much of the problem faced by SME builders is the availability of suitable housing sites and contending with a planning process beleaguered by delays and red tape. The report suggests several steps that the government could take:
Finance is another problematic area for SME builders. The availability and terms on which borrowing for residential developments have become increasingly difficult since the Global Financial Crisis and of course, potential lenders are far from encouraged by the risk, delay and uncertainty during the planning process.
Many SME builders will rely on project finance on a site by site basis, unable to mitigate risk over several sites. There are higher costs associated with development, in turn, headline interest rates are higher.
The loan to cost ratio is adversely affected by the fact that the developer will enter its equity into the scheme and profit will not be realised until the lender has recovered its fees.
The report suggests several potential solutions to some of these issues:
Red tape poses significant problems for small housebuilders, namely in the form of increased costs and significant delays.
Highways, water and land registration are the 3 main areas where red tape can cause problems.
One of the main solutions arising from the report is to seize Brexit as an opportunity to look at reforming EU regulation to help SME builders to deliver homes in areas where there is demand.
Other suggestions included:
Only positives could come out of the government taking steps to help SME builders. Increasing the number of SME’s would help to bring about an increase in housing output and would bring far reaching benefits to towns and cities.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.