An expensive planning system, skills shortages and increasing land values are doing nothing to dampen the spirits of optimistic housebuilders, according to the panellists at Place North West’s Northern SME Housebuilders’ Lunch in association with Lloyds Bank.
The event at Manchester’s People’s History Museum was attended by 125 professionals from across the residential property sector.
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Glen Wilson, head of property at Lloyds Bank, outlined the bank’s “profound interest in the UK housing market”. Wilson and his team review and assess development funding across the North West, with a focus on small and medium-sized housebuilders with a turnover of between £1m and £25m a year.
According to Wilson, Lloyds has grown lending by 5% net year-on-year, while UK bank lending to housebuilders has shrunk on average by 3.5%. Wilson’s team currently has £200m of sanctioned lending to local companies, with a further £150m pending approval.
Wilson called for “sustained initiatives” in order to address the housing supply crisis, which could be met through “increased quality of rented accommodation, increase in quantity and support for social housing, and an increase in support for SME housebuilders”.
In order to combat the shortage of new homes, and bolster a sector which saw 75% of SME housebuilders disappear during the downturn, Lloyds has established a £100m equity fund, called the Housing Growth Partnership, in a joint venture with the Homes & Communities Agency “to support SME housebuilders and enable them to scale up”.
As part of its work with SME housing developers, in September Lloyds Bank published a research report into the SME housing sector, following a national survey looking at growth, employment and supply issues.
The evidence, according to Wilson, showed a sector with “an air of confidence, and an expectation of growth”.
Around 75% of businesses surveyed said they were looking to grow staff numbers, although 24% also said that the biggest challenge facing their business was the skills shortage, particularly for electricians.
Planning was a problem repeatedly identified in the survey, with 46% citing the “slow planning system” as a major factor contributing to the housing deficit.
Wilson described the Government as having “a track record of missing targets”, with 2015’s annual total looking set to fall short of the national goal of 250,000 new homes by more than 100,000 units.
Speaking on a panel alongside Wilson were Ian Thomlinson, director at Wilmslow-based Land4Homes, Paul Williams, director at Mosaic Town Planning, and Chris Curtis, development manager at Seddon Housing Partnerships.
Land4Homes specialises in selling land for residential development. According to Thomlinson, the majority of new entrants to the land market have been SMEs. He said that he continued to see ample supply and increased demand in towns, but with a market increasingly focused on Greater Manchester and its conurbations.
Thomlinson agreed with the Lloyds report that planning was a challenge for SMEs, however he stressed that while “planning is relatively easy to secure in the right location, the upfront cost was a lot for SMEs to handle”.
He also expressed concerns about the growing dominance of the private rented sector in the residential market.
“I have reservations about the quantum of PRS supply that will hit the market at the same time,” he said. “PRS developments are viable and easily fundable, but a lot are going to come forward in the next 18 months and could flood the market.”
He also pointed to a “lack of consistent funding streams” to support SME developments, making it harder for companies to forward plan.
Speaking on the Housing & Planning Bill which has recently started its passage through Parliament, Paul Williams of Mosaic Town Planning described it as a “faint” document, a framework which covers a number of areas, including permission in principle which would automatically give planning consent to schemes on land allocated for housing within local plans. The Bill also looks at development orders and an extension of permitted development rights.
Williams said that the Bill was part of the “Government hoping to remove bureaucracy for planning applications”, although was sceptical about how far that would be successful.
Seddon’s Curtis highlighted the changing attitudes of housebuilders across all parts of the residential sector, including registered providers who were increasingly looking at delivering housing for private rent in order to fund other developments.
However he urged caution, as “if registered providers are looking at a more commercial strategy, this makes them more susceptible to market cycles.”
Like Thomlinson, Curtis pointed to the challenges presented by the planning system for SMEs, particularly in terms of the initial financial outlay. “Housebuilders are looking at a £50,000 cost upfront before you’re even sure about what you can do with the site. That’s a big cost for a small company to absorb.”
Williams said that this negative view of the planning system wasn’t helped by the approach of local authorities. “Councils aren’t helping themselves with their attitude in terms of planning,” he said. “But this can reflect the pressure of Government targets. The appeal system is clogged up, and there is a lack of respect for planning from central government.”
Overall, the panellists presented a positive view of the housebuilding market. In terms of land values, Thomlinson said that the prices were “steady”, with premium land in a prime location selling for up to £1m an acre, compared to £400,000 for an acre in a secondary location.
For house prices, Wilson predicted that values would increase by up to 25% in the next five years, and also said he expected the PRS boom to continue, particularly as investor interest moved up to the North East and North West from London.
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