SMEs can build the homes the country needs, but they cannot do so without finance. Rupert Bates joins Quantum Development Finance and three SMEs to discuss how specialist lenders are helping SMEs construct in a challenging market.
It was many years in planning and was beset with funding problems and public resistance. We could be talking about any number of new housing developments in the current climate, but this construction project was the Clifton Suspension Bridge nearly 200 years ago.
It took 33 years from the initial design in 1831 to completion of the iconic structure, and Isambard Kingdom Brunel died before it was finished. It is rumoured the legendary Victorian engineer’s last words were: ‘No planners at my funeral.’ They’d be late anyway.
We are meeting in the formidable lee of the bridge, at a Clifton restaurant in Bristol. One funder, three housebuilders, and all knowing how Brunel must have felt, as planning continues to frustrate, be you a builder of houses or bridges.
Oliver Thompson is CEO of Quantum Development Finance, a specialist property lender, offering bespoke finance solutions to SME housebuilders.
“We provide dependable long-term funding combined with fast and transparent decision-making. We designed our processes and lending criteria intentionally around SME housebuilders. That’s because we wanted the business to be built on long-standing repeat client relationships,” says Thompson.
Quantum Development Finance is just three years old, but its senior leadership team’s experience means it properly understands SME housebuilders and acts as a genuine partner, not just a funder – especially important in the current climate.
It has already lent more than £1billion, with the vast majority repeat business, and crucially offers builders the flexibility to fund site by site or across multiple developments, helping them keep moving as government policy and market conditions allow.
“A recent focus has been our hybrid Revolving Credit Facility (RCFs), which makes the senior debt more efficient and cost-effective for housebuilders on multiple projects. The product is structured to improve cash flow as sales complete, allowing our clients to accelerate future site purchases,” says Thompson.
Nothing and nowhere is easy, but Bristol is a building brotherhood, a hotbed of innovation and opportunity, despite the headwinds. Round the table of The Ivy with its Art Deco interiors were three SME developers, combining passion and resilience, bringing outstanding new homes to the south-west of England.
James Fowler co-founded 3West, alongside Colin Palmer, in 2021. From a family of East Devon housebuilders, school holidays were on building sites, but finance was his first business calling, eventually establishing his own hedge fund.
“I left finance in 2019, and, around that time, some family land got allocated for development. With an itch to scratch from my youth to build houses, I bought the land from my family and formed 3West. The business has grown to a £50million turnover business, around 180 houses a year, aiming for a £200million turnover and 600 to 700 homes a year by 2030,” says Fowler, with 3West based in Exeter.
James Hutchinson is managing director of Woodstock Homes, having previously been land director of the SME developer, which was founded in 1996 by Martin Newman. Now with three divisions – Woodstock Homes, Woodstock Partnerships and Woodstock Strategic – turnover is forecast to hit £40million this year.
“I am a strong advocate for the SME housebuilding sector, and passionate about delivering much-needed, high-quality, new homes while creating long-term value for local communities. I am particularly interested in the role that strategic partnerships, innovation and flexible funding solutions play in supporting sustainable growth,” says Hutchinson, with Woodstock Homes based near Bristol.
Barry Stiles is managing director of bunnyhomes, currently building around 110 homes a year across Cornwall and Devon and based in the Cornish town of Bodmin. Stiles spent many years in the volume housebuilding world and was latterly regional chief executive at Redrow, with operational control across four divisions.
“bunnyhomes was founded by Tracey Kent in 2013 as a residential lettings portfolio business before evolving into a new homes developer when I joined in 2018.
I have never worked harder, but I have never enjoyed housebuilding more,” says Stiles.
All three SMEs advocate the importance of specialist lenders such as Quantum, with banks still too slow, too rigid and too risk-averse, relying largely on computer calculations, not human relationships.
“Big businesses require big processes, while SMEs, with the right support, can experiment with new products to drive standards and innovation. Then again, new regulations are making us less nimble and we’re having to operate more like PLCs. The barriers to entry are huge for start-ups. Even the smallest housebuilder needs an army just to navigate planning and technical requirements,” says Fowler.
Hutchinson, in the face of a big skills shortage, believes, career wise, a SME housebuilder is the best teacher, with any new recruit required to wear different hats. “A sales pitch when we recruit is you will learn a lot more about the industry with us.”
All agree the risk reward balance has tilted considerably. When perhaps £150,000 was on the line with a planning application, that can now touch £1million, with so much to spend upfront, on top of delays, with around £76,000 added to the cost of building a home since 2020.
“Also, if taxes keep being added, a large landowner, who can afford to take a long-term view, will hold off selling,” says Fowler, with Stiles adding that SMEs simply cannot afford to speculate with at least some degree of certainty.”
“The reason we started a strategic land business was because we could see, with the competition for land, how margins were eroding,” says Hutchinson.
A development needs to see the equity turned as quickly as possible, as delays eat into margins, with no money to reinvest in other sites; meanwhile inflation is hitting build costs, but not sales prices.
Looking at the south-west, Thompson says people moving to the region may need to sell a £2million home in London to buy a £1million house in Devon. “But Stamp Duty is killing the top end, and affordability is killing the bottom end, and more people are only moving out of necessity. Sentiment is so important, but many first-time buyers don’t now feel they need to be on the ladder, if they could ever get there, so there is no longer that sense of missing out on homeownership.”
Stiles believes there is still an ambition to buy, despite the affordability gap, and that shared ownership is helping first-time buyers, while Hutchinson says the right mix and partnership deals with housing associations can drive sales and give more certainty of turnover.
While Labour’s pledge to build 1.5 million new homes has been rightly ridiculed, if the conditions were right, the more robust SME developers at 50 homes a year could look to scale to say 250 and the multiple starts to look promising. The alternative is a firmer grip on supply by a small group of big players, whose businesses, despite shared pain and policies, are worlds apart from SMEs, and perhaps should be treated entirely separately.
But planning is not swayed by a name, however heavyweight. Berkeley Group has applied for a Judicial Review into the Planning Inspectorate’s decision to refuse planning permission for its Peckham town centre redevelopment, with Rob Perrins, executive chair of Berkeley Group, labelling the decision “clearly flawed and will undermine the government’s pro-homebuilding agenda unless it is swiftly quashed.”
“How can anyone invest in a town centre when policy-compliant plans for allocated sites are refused on the basis of vague and subjective heritage concerns? The fact that this borough is spectacularly failing its housing targets and faces a severe housing crisis appears to count for nothing,” says Perrins.
Berkeley’s proposal would deliver over 850 private and affordable homes, a new supermarket and £15million in Section 106 contributions and Community Infrastructure Levy (CIL), as well as 1,000 jobs and 60 apprenticeships.
Delegated powers, agreed the table, are a ray of hope, while, as the steaks landed medium rare, talk turned to quangos with far too much decision-making influence. Don’t get the SMEs started on archaeology, and when bats are mentioned the brasserie walls are almost covered in pavlova.
Nimbyism is a bane of housebuilding, but Stiles says rather than facing the wrath of pitchfork-wielding locals in village halls, try to talk to individual objectors in their own homes to turn the heat down, cutting through the crowd noise to address the genuine concerns.
“Also, it might be that a new doctor’s surgery would be welcomed, but it is the NHS saying no, or a new classroom for the school, but the Education department says no. SMEs want to do the best they can locally, because we are local and homes are our legacy,” says Stiles.
Thompson regularly walks the sites with his clients. “SME housebuilders are local businesses that care uniquely about the homes and communities they deliver, which is obvious when you spend a day on site with any one of our clients.”
The resolve in the room was as tangible as the passion; the three housebuilders, with the backing of Quantum giving them access to capital, were well poised to pounce on any market uptick. When homes are not being built, you need to build resilience, with the confidence that your lender of choice, unlike the government, understands the business of housebuilding and wears a hard hat.
Brunel, more of a stovepipe hat man, would have loved the Bristol chat, while gazing wistfully towards the Avon Gorge.
