Housing crisis? What about the small building firm crisis?

The housing shortage is being talked about up and down the country from Westminster to the corner shop.

Adrian Wild, founder and Managing Director of HBXL, and ex builder and developer of many years, is a well known advocate for small builders in the UK. Here he considers the grand plans people have for small firms to help combat the shortage of new homes:

Many commentators have identified the role small building firms could play in solving the crisis. Mike Cherry from the Federation of Small Businesses has said; “Small builders are the best avenue to turbo charge immediate action to solving the UK housing crisis.” Whilst Richard Beresford, chief executive of the NFB, said; “With SMEs accounting for 98% of construction companies, the panel should better reflect the make-up of the industry.”

The Government has suggested that SMEs could build around 25000 new homes per year. This would require 5000 small builders, building five houses each per annum.

That would be wonderful, but in my view, this will never happen unless something changes. There are some significant issues that are preventing small building firms from contributing in a meaningful way:

1. Finance

Builders are busy working on home extensions, renovations and re-configuring existing houses into apartments. They have little choice.

Upgrading existing properties is something that smaller builders can readily do as the cash outlay is within sensible boundaries. Banks can secure loans on the existing property so lending is relatively easy.

But asking a small business to fund a project involving several houses in say the South East, is another matter entirely.

House prices in the South East, outside of London, are around £4-500K. Land for say a five-house site is likely to cost in excess of £1M.

The bank may allow two properties to be built before on-selling. So the combined cost of land and build along with all the fees will be in excess of £1.5M. The bank may lend around 60-65% of that, so the builder will have to find the remaining 35% from his own funds… around £500K.

And that’s a large sum of money for any small business to find, which will mean in all probability they will need to find other financial backers.

2. Economic climate

Costs can rise during the often protracted process of getting planning etc. and house prices can fall if the market turns, leaving the builders very exposed. Many small developers were wiped out in the last crash, and there are concerns that the market could turn again given the various economic uncertainties. Still worth taking the plunge?

3. Land

Of course our small building firm will be lucky to find a suitable site even if they can raise the funds. 5000 smaller sites per year are unlikely to exist in reality as most “infill” sites and small addendums to villages have already been developed.

And anyway, planning permission becomes harder to come by as the size of the site increases, what with the problem of road links, amenities and so on.

4. Labour

From a production point of view many builders, particularly in the South East, are reliant on migrant workers, and a relatively large number we understand, are returning home because of the falling pound. This situation is compounding the already gaping skills gap. Which brings me on to apprentices and training, and the need for a much greater take-up to ensure the industry has the builders needed for the future.

The solution?

In my view a different strategy is required to provide large swathes of development land required for 125000 homes over the next five years.

One site – lots of small businesses

The Government should provide/fund large sites dedicated to small builder/developers, perhaps in association with ‘self and custom-build’ sites, or certainly along similar lines.

All the infrastructure including roads, services and amenities would be handled separately, so the small builder could focus on building the houses. Planning would be a foregone conclusion – the design would just need rubber-stamping.

And Government could profit from stamp duty and rates on completion.

Skilled entrepreneurs

It takes a brave small builder to start up and run a development. Mentors and coaches would be hugely beneficial to hone the many skills required to navigate the complex process.

Just as the Hinkley Point C project has resulted in FE colleges partnering to provide the necessary skills, or the nationwide campuses supporting the new High Speed Rail, the same thinking should be applied to housing.

Where there are large tranches of land, local colleges could provide the skills and training – for those on and off the tools. We’re starting to hear of instances where this is happening, but the lack of meaningful projects means there are very few.

Next step

As a construction software company dedicated to the smaller building firm, we talk to business owners up and down the UK day in day out, and obviously we work hard to give them the ‘admin’ tools to carry out their work profitably and safely. In those conversations we’ve discovered many would relish the opportunity to get their teeth stuck into larger developments, but the obstacles are too many, the barriers too high. Basically the odds are stacked against them.

The thousands of small builders desperately need to be heard. The Government’s Housing White Paper is becoming a dim and distant memory. I would be very interested to hear from others who also believe real action is required in order to get ‘Britain’s Smaller Builders Building’.

Contact me at: adrian@hbxl.co.uk