Time to cut the red tape for our SME housebuilders

The government has set a target of building 300,000 new homes a year by the mid-2020s to help tackle the UK’s on-going housing crisis yet SME housebuilders are still being tied up in red tape holding them back from making a significant contribution.

Despite Phillip Hammond’s pledge in his Spring Statement of more than doubling the Housing Growth Partnership, which provides financial support for small housebuilders, to £220m, small and medium sized (SMEs) housebuilders continue to be blighted by red tape, disproportionately to their larger counterparts.

Red tape, which housebuilders of all sizes have to face, includes access to finance; procurement regulations; land availability; compliance with regulations and technical standards.

However, the burden shouldered by SMEs means that they often muscled out by the larger players and in such a tight market, deep-pocketed builders prevail. As such, since 2008, the number of small house builders that put up between 10 and 30 units per year has fallen by 50%, while in comparison, the number of big builders has increased.

Stewart Baseley, executive chair of the House Builders Federation (HBF), recently stated that there are a “record number of applications being submitted and approved”, which “is a clear demonstration of the industry’s commitment to ramping up housing supply even further than the unprecedented increases of the past four years”.

Baseley said that in order to build more homes more land needs to come through the planning system quicker, and should encompass a broader range of sites. However, SME builder numbers have fallen by more than 80% in recent decades, according to the HBF, as legislation has worked against small firms and start-ups as well as those delivering specialist housing such as retirement homes.

So what are the underlying problems and why do these issues exist?

Private housebuilding in Britain is regulated by the Town and Country Planning Act. It was introduced by a Labour Government in 1947, initially to protect the countryside and sprawl of cheaply built, often single storey properties, which had emerged during the war years. Yet under the planning system, owners’ rights to develop land are strictly controlled. Local councils determine what purposes land can be used for, and planning permission to build houses is only granted according to a strict local plan. In addition, on the edges of big cities, green belts, designated in the 1940s and 1950s, make building even harder.

Letwin legacy

Phase one of the Letwin Review, an independent government appraisal to tackle barriers to building, has just been published. It was initially meant to identify factors such as burdens in the sector, linked to regulation and enforcement of planning and other consenting regimes. However, in reality, it focuses primarily on large housebuilders’ land banking sites with planning permissions rather than the impact onerous regulation and regulatory cost has on smaller firms. Furthermore, the report tries to establish links between absorption rates and affordable housing as to reasons for the slow delivery of larger sites, coupled with planning policy that seeks to target the larger sites delivering high unit numbers over those smaller sites which are only constructing one to 40 units, for example.

On the one hand, councils favouring one overall scheme design and the masterplan of that site from a large housebuilder makes sense from an efficiency and joined up approach perspective. However, on the other hand, it means that individual sections of the overall site are held back in coming forwards for housing delivery until the entirety of the site can be redeveloped. From an SME point of view, this essentially counts them out of being competitive once again.

In addition, the government has widely commented that councils which fail to build enough homes will lose their right to determine where new houses are placed. Yet this very establishment should really be taking some power away to certify that local authorities are challenged more rigorously when they refuse new developments and to oversee the process, so that planning is given consent across a range of sites, regardless of size or type.

If planning procedures become less complex, SMEs will spend less at the hands of planning delays or knock backs, so unjust expenditures for these businesses will be significantly reduced. This will essentially enable these companies to be able to start to compete with national housebuilders and PLCs on a more level playing field, allowing them to make inroads on the monopoly the larger players have been experiencing in recent times. This, in turn, will help to establish the wider market.

Red tape is preventing SMEs from contributing towards the government’s housing figures, so if they are to be achieved, legislators need to take swift action to consider how they can support smaller businesses and the work that they do.