Pocket Living’s Marc Vlessing on why the government must support SME housebuilders

This is hardly surprising, when for many people, no effective choice exists, and competition is negligible in their search for a place to live and ultimately buy. For many people, it literally is take what you are offered, a 21st Century version of Henry Ford’s famous quote ”you can have any colour you like as long as it’s black”.

This is largely down to an effective lack of competition and choice in who actually builds our new homes. Arguably, this is mostly due to England’s costly and overcomplicated planning system, as well as limited choice in terms of future residential sites coming forward. But it is also a consequence of the rationalisation, or decimation, of the housebuilding sector over the past 20 years.

Whereas once, small and medium-sized (SME) enterprises, particularly on a local and regional level, delivered a significant number of homes per year, the consolidation of supply around a number of larger volume builders has resulted in fewer homes being built by even fewer builders.

In many respects it is something of a miracle that England has managed to deliver the homes it actually has in recent years. In fact, aside from during the pandemic, the recent decline in residential construction work has been the steepest since the spring of 2009, despite the fact that the UK is gripped by an ever-worsening housing shortage.

This consolidation of market supply is clearly enough to worry ministers and is likely to be what initiated the recent Competition and Markets Authority review into the sector. That the planning system needs reform and extra resource is beyond question, but fundamentally, more builders are needed to build. Yet this is unlikely to happen in a market where starts are slumping faster than the share price of some of the volume builders.

Challenge the housing minister and the response is likely to be “yes, but what can be done”. Actually, plenty could be done, if only government acted with the same urgency as is now apparent with the energy sector and wind farms and did more to support SME builders and would-be homeowners.

In all of this, confidence to build is key and many of the larger housebuilders lack that due to a challenging sales environment and the cost and complexity of bringing forward large sites. Herein lies the opportunity for the untapped force that is the SME sector, on the verge of extinction with just 2,500 operational firms across England, over 80% fewer than in 1988.

That support can take many forms, with planning reform and simplification being top of the list. A broader coalition of firms is calling on the government to urgently issue a Written Ministerial Statement to implement a small sites proposal with the potential to unlock an extra 1.6 million new homes as part of the update of the National Planning Policy Framework.

An alternative would be to look at the potential for local authorities to acquire unsold or future phases of new housing schemes and offer sales certainty to the sector to get on and build. Given the scale of the affordable housing crisis and the need to provide key worker accommodation, this could have the added benefit of increasing the number of affordable homes through acquisition in the short-term.

To be clear, this is not a call for the government to underwrite the sales pipeline of every developer, but to have the flexibility to be able to support the industry on a case-by-case and site-by-site basis to get these new homes built. Another would be for a greater focus on the SME sector from Homes England.

With the output of the major players dropping, now is the time for the long overdue renaissance of the SME sector. If this government fails to seize the opportunity, then perhaps the next one will. To steal a phrase from a then potential incoming Labour prime minister, now is the time to “think the unthinkable”. Only this time please don’t sack them as a minister if they do.

Marc Vlessing is chief executive of Pocket Living