Ian Baker, Managing Director of Baker Estates, writes that one of the main reasons why more small and medium sized housebuilders (SMEs) are not delivering homes in the numbers we need is simple – it’s a lack of confidence.
The government wants SMEs to play a greater role building new homes to help us tackle the housing crisis. With eight national housebuilders building 60% of our homes, they see the diversification of the market as a key priority.
I’m uniquely placed to consider the government’s proposals as I’ve been on both sides of the coin. I set up Baker Estates, a new housebuilder, at the end of 2015, and before that I was Group Managing Director of national housebuilder Linden Homes.
The Housing White Paper and other reports into the state of the ‘broken housing market’ have rightly identified the role that SMEs can play, but they haven’t figured out that confidence is key.
The recession was nearly 10 years ago, but this still feels like yesterday for much of the industry. At Baker Estates we’re fortunate to be a well-capitalised business, but I can understand why some entrepreneurs feel robbed of their ambition.
I remember the immediate aftermath of that period; the construction businesses that survived had the foresight to shrink their business down to a manageable level. In the years since they’ve been operating at a comfortable level, and right now for many SMEs there isn’t the confidence in the market to upscale and try to grow their businesses again.
Housebuilders are retailers, and few retailers, if any, have as long a period between identifying an opportunity and bringing their product to market. Capital is tied up for an unacceptable amount of time and the volatile political landscape we now face, both at home and abroad, could unsettle the housing market. It’s therefore no surprise to me that smaller developers would be nervous about committing more of their cash to building extra homes.
As a large housebuilder, you can often ride out this period of financial exposure: for the vast majority, it’s not their money. But for smaller housebuilders, who are signing cheques and risking their livelihoods on a daily basis, it’s a different ball game.
Despite Baker Estates’ strong financial footing, I am still shocked at the laissez-faire attitude of local authorities and statutory consultees when it comes to the difficulties facing smaller developers.
For example, we’ve been waiting for over six months to commence work on a new site while the local council considers details we submitted to satisfy the pre-commencement conditions. I’ve already employed a site manager for the project, but until the council gives us the go ahead I have the prospect of him having limited work to do. SMEs don’t have the luxury of carrying staff or of having a range of developments to provide continuity of work.
More needs to be done to de-risk the gestation period from acquiring a site (when you commit your capital), to when you actually see a return. SMEs need help to prosper and deliver the housing we need: we face the same challenges as the major housebuilders, but crucially we don’t have the same financial resources to cope with them. Despite the government’s recognition that SMEs are crucial to the success of the housing market, there’s very little targeted incentive.
A further impact on confidence is the potential end of Help to Buy in 2021. The scheme has clearly been a success but given the time it takes to get houses to market, developments being considered today may be sold in a completely different market. The government wants SMEs to commit to expanding but they are not committing to ensuring a stable market.
We’ve got an incredibly volatile macro-economic environment at the moment, and add to that words like “Hard Brexit” and “No Deal”, and you can see that it makes business people nervous. As Bill Clinton’s campaign team might have put it: “It’s confidence, stupid.”