Back small builders to break the stranglehold of big developers and boost housebuilding
Government aim of expanding home ownership by building 1.5 million homes by 2022 at risk as our housing market is too reliant on big developers
England will continue to fall well short of meeting housing demand unless the government takes further action to support small builders, according to a new report from IPPR, the progressive policy think tank.
IPPR’s report Think Small, Build Big identifies a ‘toxic-triangle’ of problems which face England’s SME housebuilding sector. It argues that the catastrophic decline in the size of England’s SME housebuilding sector is proving to be a major barrier to increasing housing output. It finds that the number of SME housebuilders is now barely a quarter of what it was in the 1980s, and the share of output of is half what it was at its peak. The report finds:
- A ‘toxic triangle’ of problems in the planning system, the land market and access to finance are holding small builders back which is hurting housing delivery.
- The government must be more ambitious in its support for small housebuilders as IPPR sets out a 7-point plan to revitalise the sector and increase housebuilding.
- German housing market benefits from far stronger position of SMEs.
Unless significant action is taken to boost the SME housebuilding sector, the government risks missing its housebuilding target and locking the next generation out of home ownership.
The report states that a combination of problems in the planning system, the land market, and insufficient access to finance make up the ‘toxic triangle’ which are hampering SME housebuilders:
- The planning process works against SME housebuilders through significant ‘up-front’ costs to submitting an application and prioritisation of larger sites by cash-strapped local planning authorities.
- The land market sees too few small sites come forward for development, again hampering the efforts of SMEs and the public sector has shown little interest in splitting up large sites to back smaller builders.
- Access to development finance is also a major impediment to England’s SME housebuilding sector, which heavily relies on major banks and their lending to SMEs has dropped significantly since the 2008 crash.
In each of these areas, the system works better for SME builders in Germany, and the report argues that learning from the German experience would be of significant benefit in this country.
The government has taken some action to address these issues, the report notes – for example setting up a new regime of ‘permission in principle’ in the planning system and providing financial support through the Home Building Fund.
But the report argues that the government should go further and sets out four reasons why it should want to address problems with the decline in SME builders: there’s a constraint on capacity in the housebuilding sector; SMEs reach smaller sites that large developers can’t reach; SMEs diversify the market which drives up housing supply; and Brexit will pose significant risks to the residential property sector, there’s a need to understand this so the SME sector doesn’t decline further.
The report sets out a 7-point plan to revitalise the SME house building sector and increase housing supply, including the following actions:
- Make increasing housing supply a clear objective of the release of public land, and prioritise release to small housebuilders providing alternatives to upfront payment.
- Give new powers to local planning authorities to designate and assemble areas of land for development; buy the land through compulsory purchase powers at closer to use value; and parcel the land up for small builders to develop on.
- The government should consider using the British Business Bank to provide financing to small builders and the responsibility of private banks – in which the UK government continues to hold a significant stake - to provide them with finance.
- The Office for Budget Responsibility (OBR) should be asked to monitor credit availability to the housebuilding sector, including SME builders, to allow for swift changes of policy at times of economic downturn.
Review the risks of Brexit to the SME housebuilding sector and ensure that future immigration controls are not overly burdensome and unworkable for SMEs in the construction sector.
Luke Murphy, Senior Research Fellow at IPPR, said:
“England has seen a catastrophic decline in the number of small builders over the past three decades and this is a major barrier to building the homes we need.
“Ministers has taken some steps to revive the sector but it has been too piecemeal and partial. To have any hope of meeting its target of building 1.5 million homes by 2022, the Government must be more ambitious for the small housebuilding sector.
“The Government should prioritise public land for release to small builders, give new powers to local authorities to buy up and develop land, and consider using the British Business Bank to boost financing to the SME sector.”
Ed Turner, lead report author and senior lecturer at Aston University, said:
“Small builders in England face a toxic combination of problems in the planning system, land market and access to finance which are holding them back.
“By contrast, in Germany small builders are thriving and that is a major reason why their housing output has been consistently far higher than England’s.
“The government should learn lessons from abroad and take bold action by implementing our proposed 7-point plan which will provide the essential -conditions for a successful SME housebuilding sector in England.”
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The new IPPR report Think small, build big: Lessons from SME housebuilding in Germany will be available at https://www.ippr.org/research/publications/think-small-build-big from 00.01 Wednesday 20th December.
Drawing on experience from Germany, the report recommends to government a seven-point plan to give England the greatest prospect of revitalising its SME building sector, thus making a substantially greater contribution to housing output:
- Look to provide greater certainty for SME developers early in the planning process, and increase the volume of small sites coming forward for development.
- Seek to provide greater clarity on developer contributions.
- Provide robust support for custom builders in planning and in financing, and support a range of tenures.
- Make increasing housing supply a clear objective of release of public land, and recognise the potential of SMEs to contribute to that.
- Provide tools to local government to support build-out of land allocated for development, including a stronger role for local authorities in land assembly.
- Have a clear objective of central government to ensure SME builders have sufficient development finance (monitored by the OBR), whether from the private or public sector, and regularly review the success of government funded programmes.
- Review the risks of Brexit to the SME housebuilding sector and ensure that future immigration controls are not overly burdensome and unworkable for SMEs in the construction sector.
IPPR aims to influence policy in the present and reinvent progressive politics in the future, and is dedicated to the better country that Britain can be through progressive policy and politics. With nearly 60 staff across four offices throughout the UK, IPPR is Britain’s only national think tank with a truly national presence. Our independent research covers the economy, work, skills, transport, democracy, the environment, education, energy, migration and healthcare among many other areas.