COMMENT | 2021 needs to be year of build, build, build

At Close Brothers, we have supported SME housebuilders over the last 40 years and their importance to the economic growth of communities across the North of the UK has never been more vital than it is today, writes Daniel Joyce.

Earlier this year, we conducted one of the most comprehensive surveys of small and medium enterprise housebuilders, in partnership with the Home Builders Federation, the national trade body for housebuilders. The survey, which totalled close to 200 responses, examined how the sector was performing during Covid-19, the barriers for growth and offered recommendations to support the sector through this uncertainty. Here we share the results for the Northern region.

Growth

Similar to the rest of the UK, we have seen that Covid-19 has negatively impacted growth in the region, with 68% of SMEs projecting a drop in growth as a result of the pandemic, of which 40% predicted their growth will be down by between 10% and 50%.

This is not only concerning for the supply of new homes in the region, and potential for house price inflation, but also the wider supply chain and property market, which provide a wealth of employment and local investment opportunities.

Employment

Employment is a key indicator of the wider health of the economy and the SME market is a vital employer across the region, with over a third of companies directly employing between 10 and 50 people.

Training young people and bringing in new talent is also a key function of this part of the housing sector and in the Northern region, 42% of SMEs employ apprentices, which make up 30% of the workforce. This is higher than the UK’s average, where only 33% of SME housebuilders employ apprentices which make up 19% of their workforce. It’s therefore clear that training the next generation is an integral part of the SME housebuilding industry in the region and provides much-needed employment opportunities for young people.

Planning

During my panel debate at the Place RESI event, we discussed the Government’s proposed planning reforms and what they mean for the future of the sector. Planning has long been considered one of the major barriers to growth across the housebuilding sector and despite being acknowledged by senior decisionmakers numerous times, our survey showed the issue remains and is particularly acute within the SME sector.

Within the region, 73% of respondents cite delays in securing planning permission as a major barrier, with 63% seeing a lack of resource in the planning department also restricting growth. This sentiment is echoed across the rest of the UK, with 75% of SME housebuilders seeing a lack of resource in local authority planning departments as a major barrier. We are hopeful that the Government’s Planning for the Future consultation will deliver the changes needed, but with over 40,000 responses to review and the resulting legislative changes predicted to take years to come into effect, this will not be the silver bullet many hoped for.

Looking forward

As we emerge from our second national lockdown, it will be important to see how the government supports the SME market over the coming months. Changes to Help to Buy and the introduction of regional caps risk removing a lifeline for the market for the 80% of respondents who are using the initiative, on just under a third (31%) of their sales.

This change coincides with the end of the Stamp Duty Land Tax holiday, which has been instrumental in driving the buoyancy of the post-Covid property market. Indeed, the property portal Rightmove recently recorded the highest number of sales ever agreed in a month, up 70% annually in September 2020.

Many are now pointing to this cliff-edge at the start of next year and are rightly concerned about the impact to both housing supply, sales and consumer confidence. It is our hope that either the regional caps will be reviewed or the Stamp Duty holiday will be extended, and that the right provisions will be put in place to ensure 2021 is the year of ‘build, build, build’.

It is clear that SME housebuilders are the lifeblood of regional property markets – safeguarding diversity in design, skills and craftmanship, as well as providing a training ground for young apprentices. Our research really underlines the need to support and protect this part of the property market, and we are hopeful that the resilience we have already seen will continue and that the right market conditions will prevail to ensure the sector thrives in 2021, and beyond.

Daniel Joyce is director of Close Brothers Property Finance Division, the specialist development finance lender to the property industry and part of the FTSE 250 Close Brothers Group.