Housing is crucial not just to our day-to-day lives but to the Welsh economy. Most recent figures show that Wales builds around 6,000 new houses per year, which in turn generates around £481m of economic impact and over 13,000 jobs. Despite this, SMEs house builders make up only 12 per cent of those houses down from 28 per cent in 2008.
This tells us a clear story. Since the 2008 crash the number of SMEs involved in housebuilding has declined sharply and the market has been cornered by a small number of very large firms. Welsh Government’s own estimates show we need around 12,000 houses per year to meet demand. This means overcoming the barriers to SMEs in housing is vital if we are to have a diverse sector in Wales.
And a diverse house building sector is important for many reasons. We’re all aware of stories saying the larger firms won’t build houses north of the M4 in south east Wales, let alone in rural communities in north and west Wales. SMEs are keen to fill this void and can built in any community but the odds are currently stacked against them
So what are those barriers? We recently took part in an inquiry being undertaken by the Senedd’s Economy, Infrastructure and Skills Committee into the barriers facing SME house builders and four clear messages emerged.
Firstly, the planning system – which has become a significant barrier to any SME looking to build houses. As NHBC research has highlighted, 38 per cent of SMEs in the housebuilding sector identify the planning process and its costs as a serious challenge. It’s clear the planning process is fraught with uncertainties and delays, due to under resourced planning departments. Furthermore, it lacks proportionality, so if you’re building 10 houses, 100 houses or 1000 houses you’re expected to deliver similar levels of information.
The second issue that vexes SME house builders is the availability of land. Again this links back to planning and 37 per cent of those involved in the NHBC research identified this as an issue. Too many LDPs in Wales identify sites that are vast in scale and can only be developed by large developers. More innovative local authorities such as Rhondda Cynon Taf have started exploring ‘plot shops’ where small plots are brought through planning before sale to help SME developers in this process.
Access to finance is also a major concern. For any house builder, revenues do not begin to flow into the business until houses are being sold, which means the entire planning and build process sees cash only going one way. What’s more, for most the first sales are solely to pay back the bank, meaning only towards the end of a project do profits begin to be released. This means cash flow is a major concern and we’ve seen banks retreating from this market since 2008, making it simply unaffordable to build homes.
Finally, many of those working in the construction sector are reaching retirement age and there are real pressures on recruitment in many areas. Our own work in our report Skilful Wales highlighted trade based occupations as a pinch point for many businesses. We therefore need to ensure that routes into the sector are properly supported, including apprenticeships.
So what can we do to improve the situation? We’ve suggested making the planning system more proportionate so that smaller companies are not subject to the same information requirements for a small development as one of the large house builders on a major site. We also think Welsh Government and local authorities need to look at the resourcing of planning authorities to make sure they’re staffed properly to provide a consistent service.
On the supply of land, it would be fantastic to see other authorities take a leaf out of RCT’s book and start to actively prepare smaller plots of land for developers to access. With regards to finance the solution is less clear cut. The Development Bank of Wales is doing a good job in filling some of the gaps here, but fundamentally a lack of competition in the banking market and a retreat from high streets from major banks is difficult to overcome.
Despite all of these challenges, with some small changes we can begin to reduce barriers and build a sector that’s far more diverse in its make-up. This is vital if we are to achieve the levels of housing that our citizens need and the subsequent boost for the Welsh economy, across the whole of Wales.
Media contact
About FSB
As experts in business, FSB offers members a wide range of vital business services, including advice, financial expertise, support and a powerful voice in Government. Its aim is to help smaller businesses achieve their ambitions.