One of the most comprehensive surveys of Small and Medium Enterprise (SME) housebuilders in the UK, conducted by the Home Builders Federation (HBF), Close Brothers Property Finance and Travis Perkins has found:

• Planning remains a significant barrier to increasing housing delivery over the next 12 months, with 94% of SME housebuilders seeing delays in securing planning permission or discharging conditions stifling housing supply.
• With all out elections in 2022 effectively shutting down planning system, conditions are expected to worsen.
• 78% of housebuilders also see the supply and cost of materials as major barrier to delivery (up 20% from last year).
• 59% see the supply and cost of labour as a major barrier (up from 19% last year).

The survey, now in its second year, takes a deeper look at how the Covid-19 pandemic has changed the landscape for housing delivery via SMEs and includes an in-depth focus group this year, which drills down into the key findings from the survey.

The construction industry is, and will continue to be, a key driver of economic recovery as we move back towards normality, and it is critical that SME builders are able to play their part in this recovery and also create a more diverse sector, with a thriving local and regional network of home building firms.

Frank Pennal, CEO, Close Brothers Property Finance, comments: “The combined challenge of both labour and material shortages, rising costs and planning delays are a serious risk to the delivery of new homes across the UK. Developing homes takes months and years and while some of these issues might only be short term, they risk leaving a lasting legacy on the provision of new homes. It is important for the industry to work together to overcome these issues, encouraging young talent into the sector, reforming the planning system and securing sustainable supply chains.”

Stewart Baseley, executive chairman of the Home Builders Federation said; “Recent decades have seen a collapse in SME builders numbers and the survey shows the considerable challenges the sector continues to face. Every single SME I speak to is suffering badly from delays to the planning process. SMEs are literally having to put their businesses on hold whilst Local Authorities delay the start of construction as their planning departments don’t have adequate capacity to process applications effectively. Allied to concerns on materials and staff, planning delays threatens the demise of even more SME builders.”

Kieran Griffin, Managing Director, Travis Perkins, comments: “With more people than ever in need of good quality housing, it’s not an option to put down tools. This survey shows how important it is that we work really closely with our customers and suppliers, and across the industry, to ensure developments continue. Only by collaborating and finding smarter and more efficient ways of working together, and planning well ahead of time on projects, will we overcome the current market challenges with Travis Perkins as a leading partner to SME house builders.”

Full survey findings are listed below.

SME Housebuilding Sector: State of Play:

These findings demonstrate just how quickly serious challenges can arise for SMEs, as seen by the emergence of material shortages and related cost pressures.

Planning

The survey results showed that the planning process was, again, the most significant challenge that SMEs face and that the problems with the process have worsened over the last 12 months.

In particular, most respondents could give instances of a development that had taken years for a planning resolution. Many respondents also felt that the planning process specifically disadvantaged smaller firms. Partly because larger builders have the financial clout to soak up the costs of the long and complex planning processes, but also because councils are indirectly incentivised to make the planning process more straightforward for large housebuilders- as larger schemes enable local housing target to be met more easily.

“[For one planning application] We are on the fourth conservation officer…the fifth planning officer and the second head of planning. There is no consistency whatsoever between people.”

FOCUS GROUP PARTICIPANT

Material Shortages

In recent months, global materials shortages and subsequent price inflation have proven to be another significant barrier for SMEs and now features as one of the top three major barriers identified by respondents.

• 78% of SME housebuilders see the supply and cost of materials as a major barrier to increasing housing delivery over the next 12 months (up from 20% last year).

“In March we were paying £9 a sheet for 9mm Oriented Strand Board, and up until recently we were paying £32 a sheet. Every single product has gone up.”

FOCUS GROUP PARTICIPANT

Some respondents stated that the increases could be absorbed by higher house prices, but most felt that this is not always possible as materials were running out before houses could be completed and they, therefore, could not be sold.

Labour Supply & Apprenticeships

The housebuilding industry is a major employer in the UK, with an estimated 800,000 directly or indirectly supported by the planning, design and delivery of new homes. Construction activity is one of the major drivers behind post-pandemic economic growth, and alongside an increasing demand for housing, it is vital that home builders can continue to attract the necessary talent.

Although the skills shortage has been a frustration for builders for many years, the impact of Brexit and Covid-19 has made this more acute during the past 12 months. This has resulted in considerable wage inflation, something that SMEs are, less able to absorb than their larger counterparts.

• 59% of respondents reported the supply and cost of labour being a major barrier to housing delivery over the next 12 months, up from just 19% in 2020.

“We are probably 10% short in every trade”

FOCUS GROUP PARTICIPANT

The silver lining is the significant growth in the number of apprentices employed by respondents:

• Just under 60% of respondent employ apprentices in their business, as compared to just 33% of respondents last year.
• A significantly higher number of respondents in the North reported that they hire apprentices (88% as compared to 59% and 52% in the Midlands and South respectively), and this coincided with only 50% of respondents in Northern regions citing the supply of labour as a major barrier, 10% lower than the other regions.

SMEs employ a disproportionately high number of apprentices, compared to their national counterparts, which is extremely important for maintaining a pipeline of talent in the construction industry and addressing the long-term skills shortage.

Land Availability

Land availability has become increasingly problematic for smaller firms. There are a range of local and regional factors causing this, but the issue of availability was consistent across respondents and had increased considerably since the last survey:

Factors affecting availability include:

• Areas that are deemed more desirable places to live suffer from land price inflation
• Bigger organisations acquire sites that would usually be taken by SME housebuilders, changing the local market
• Ecological issues, such as nitrate issues, mean sites in some areas cannot be developed because of moratoriums imposed by authorities or, for instance, Natural England.

Impact of the Pandemic & Profits

• Just 7% felt the pandemic (site closures and social distancing) was a major barrier this year, compared to 44% last year.

With an unprecedented increase in demand for housing and the industry working hard to stay open safely throughout lockdowns, the impact of the pandemic is now considered to have been far less severe.

Although the pandemic has not had the negative impact previously thought, this is not to say that SME builders have emerged unscathed. In response to the question ‘How was your company’s profit affected in 2020?’:

• 49% of respondents reported that their yearly profits were down
• 14% reporting that profits were up
• Of the respondents that reported that profits were down, 87% of these reported that they were down by more than 10%
• Just 21% responded that their profits had not been affected

Development Finance

To ensure SMEs can grow and deliver the housing that the country needs, development finance is vital. The research has shown prominent regional differences:

• 18% of respondents in the North and 24% of respondents in the Midlands saw development finance as a major barrier
• Compared to just 3% of respondents in the South
• Overall, 58% of respondents did not see development finance as a barrier to housing delivery.

Conclusions

Despite all the differences seen between the results over the last two years, the issues associated with the planning process have been consistent throughout both. With more respondents highlighting the planning process as a major barrier in this most recent survey, it is of ever-increasing importance that these are addressed by the reforms that have long been promised by the Government.

The top three suggestions as to how the Government can help SMEs were:

• Reform the Planning Process, specifically remove the red tape and better equip planning departments
• Ensure more land is available for smaller businesses
• Make development finance easier to access on terms that allow builders to recycle their equity more quickly

ENDS

Demographics/Methodology

• More than 100 respondents carried out the online survey, which combined a mix of quantitative and qualitative data, with a 100% completion rate.
• The majority of respondents (94%) are established businesses, with 74% trading for over 10 years and 20% trading for between 2-10 years
• The regional demographic is primarily weighted across the South East (30%) and South West (20%) but there is also strong representation from the Midlands (19%), East of England (11%), North West (8%) and London (4%)
• In terms of the size of their businesses, 30% building >101 homes, 20% building between 11-25 homes, 17% building between 26-50 homes, 17% building 51-100 homes and 16% building between 1-10
• 44% of respondents employ less than 10 people directly, with over a third (35%) employing between 10-50 and just 14% employing more than 50 directly
• Once the survey was complete, focus groups were set up with smaller groups of respondents to gather more qualitative information about some of the most prominent barriers highlighted in the survey. The focus groups looked at planning and land, labour and apprentices, cost pressures and the impact of the pandemic. A total of 13 senior representatives from SME housebuilders took part in three focus groups and one indepth interview. The SMEs housebuilders represented were located across England, delivered between 30 and 200 units a year. Some had specialisms, such as net zero and sustainable developments or off-site construction.

For further information please contact:

David O’Leary, Policy Director at HBF: david.oleary@hbf.co.uk, 07891 167 072

Daniel Joyce, Director at Close Brothers Property Finance: Daniel.Joyce@closebrothers.com, 020 385 76284

About HBF

HBF is the representative body of the home building industry in England and Wales. Our members are responsible for providing around 80% of all new private homes built in England and Wales and most of our members are small or medium-sized enterprises.

About Close Brothers Property Finance

At Close Brothers Property Finance, we are property specialists who provide personalised, flexible finance to property developers and investors across the property industry. Over the last four decades we have consistently supported small and medium sized businesses and we are currently funding over 7,250 homes with a loan book of £1.5 billion. Our bespoke financial products include development finance, bridging loans and commercial investment and our specialist teams are based in three offices across the UK.

We are part of Close Brothers Group plc, which employs over 3,700 people, is listed on the London Stock Exchange and is a member of the FTSE 250. Close Brothers is a leading UK merchant banking group, providing lending, deposit taking, wealth management services and securities trading.

For further information on Close Brothers Property Finance, visitwww.closepropertyfinance.com or for further information Close Brothers Group plc, visit: www.closebrothers.com

For press information, please contact:

Anna Geffert at HERA Communication Strategies

Tel: +44 (0)7773 046 337

Email: Anna.geffert@heracomms.com

Abut Travis Perkins

Travis Perkins is part of Travis Perkins plc and the UK’s largest supplier of building materials to the building and construction industry. The company has a network of 560 branches and 300 tool-hire outlets and supplies thousands of product lines to trade professionals and self-builders across the nation. Customers will find a wide and varied range of quality timber, building materials, and tools along with plumbing and heating, landscaping, painting and decorating essentials in our branches. For more information, see https://www.travisperkins.co.uk