I have always worked as an SME developer during my career in the sector and I would not have it any other way but in the last three decades, the share of homes built by SME housebuilders has plummeted from about 40% in 1988 to about 10% in recent years and the number of SME’s has also reduced with 12,200 SME house builders in 1988 to only 2,400 by 2014, with the country still behind on meeting its housing targets.
Yet, in the last couple of years there has started to be a push from Government to enable SME developers to deliver more as we look to resolve the housing crisis, with last year Robert Jenrick announcing a new £1billion fund to help finance smaller housebuilders and promoting the importance the sector has in delivering the thousands of homes needed across the UK.
I tend to agree with him, from my work within SME development at Merchant Land, I have found that we are able to deliver high quality homes on small and medium sized sites while tackling the big issues such as sustainability, inclusion, social value and producing the vital housing needed with less resource and finance then the larger players. I also believe that we have a more flexible approach to our developments, considering individual design preferences rather than the ‘cookie cutter’ approach we can often see on the larger development sites.
There are challenges though still facing us, with less economies of scale, buying power, difficulties with procurement and in general a smaller team and resource we have to work closely with our supply chain and local authorities to ensure that we deliver the best product – and that we also deliver the financial returns for our owners and backers so that we have the financial fire power to invest in schemes and locations we know can be successful for all stakeholders.
Our biggest issue, the same as many developers whether large or small, is the buying of land and the expense this entails and often time, with a smaller in-house team we will bring in consultants – which is very important as they bring their individual expertise, but if there is an unexpected delay or there is an intensive process then often this can become costly for the smaller developers, which sometimes can be forgotten.
This is where I believe the new planning reforms could make a difference. This could provide smaller developers with the confidence to be able to buy sites, understanding already what the opportunities and restrictions are and enable us to move more quickly, ensuring capital and resource isn’t tied up for so long. Currently, we find that on smaller delivery sites the planning applications can take just as long as the larger sites with it taking five years from purchase to occupiers moving in, which is a long time for a smaller company to tie in capital.
Permitted Development Rules reduces this delivery time even more, which many SME developers see as a good opportunity, with a recent LandTech study finding that 54 percent intend to make use of new permitted development rules in the next two years. Three quarters believe that using PDR will enable them to deliver more units in the next 24 months, than they have in the previous two years. Whilst there is, and sometimes with good reason, an image and reputation problem around PDR quality and appropriateness, good PDR in appropriate buildings with good quality design and standards is a good opportunity to embrace the retrofitting that is so important in terms of the sustainability agenda. Also, again if its planned appropriately in terms of CAZ strategies going forward, bringing more people to live in or closer to our city centres is a good thing.
There are other factors that could also be brought in to help support SME developers deliver the housing needed, including investment in more vocational skills training to ensure that building companies have access to skilled labour, the construction sector now has an acute skills gap, further widened by the impact of Covid-19. 2020 saw a 30% drop in apprentices recruited in construction compared to 2019, this needs to be tackled if we want to build volume housing in shorter time frames.
Government should also consider establishing VAT incentives and simplify the tendering process to make public sector development management and land sales and contracts more accessible for SMEs, we currently find that the onerous complexity of prequalification questionnaires is a disincentive to bid for construction works for public sector clients, as most SME’s do not have the time and resource to dedicate to them.
Despite the challenges, at Merchant Land we have been able to grow our portfolio. We work across housing and commercial space in London delivering both luxury schemes, flexible office and retail space and homes for hard working people on more ‘’realistic budgets’’ in the capital. In recent years the scale and ambition of our work has grown and we now have some exciting larger projects in the pipeline which include plans for a 20 storey office tower in the City of London and acquiring a one acre brownfields site in West London, which we have earmarked for a residential led scheme.
To me this demonstrates that the market is big enough for all of us and that the SME market can be very versatile across both smaller and larger sites, so sometimes you have to think small to think big as we move out of the pandemic and push forward to build the healthier, sustainable and good quality homes and offices, we all need.
Katherine McCullough, development director and head of UK property at Merchant Land