Restoring SME housebuilding to historic levels could provide 55,000 extra homes and £12.9bn additional GVA each year
New research by Savills commissioned by LDS Sales Guarantees has revealed the current scale of delivery and pipeline of SME housebuilders sites.
The Savills report estimates that 370-550 small house led sites (equating to c. 9,000-14,000 new homes) are being delivered in England and Wales per year. It also reveals there are 136,000 homes yet to start construction or gain consent on small house led sites with an estimated development value of around £40bn.
In 1988, SME housebuilders built 39% of homes in England. This had dropped to just 12% by 2017, and even further to 10% by 2020, according to the Home Builders Federation. An estimated 22,060 new homes per year were delivered by SME housebuilders in 2019.
This drop is equivalent to the loss of at least 64,000 homes per year, compared to if SME housebuilders were still delivering 39% of housing supply. The gross development value of these lost 64,000 homes is £20bn.
Analysis shows that LDS Sales Guarantees increases access to debt and reduces developer equity requirements by around 77%, therefore enabling SME housebuilders to create 3 to 4 times more housing output with the same equity than via traditional financing routes.
Boosting current SME housebuilding figures by these multiples could bring forward up to 77,210 homes in total – including 55,000 extra new homes – with a total development value of £24bn each year, most of which would be net additional to housing supply.
Further analysis by former HM Treasury and MHCLG economist, Chris Walker, shows that these 55,000 homes would support more than £12.9bn in gross value added (GVA) per year, of which at least half would be net additional to the economy.
These homes would also support nearly 200,000 jobs in the construction industry and its supply chain, of which at least half are net additional to the economy.
The chairman of Homes England, Peter Freeman, has named boosting SME housing supply one of his top 10 priorities.
If SMEs delivered an extra 55,150 homes per year, it would bring the Government closer to achieving its target of building 300,000 new homes per year by the mid-2020s, as most SME homes would be net additional to housing supply. MHCLG stats revealed 243,770 homes were delivered in 2019/20.
Last year, the Housing Minister Christopher Pincher, said: “SMEs have a key part to play by increasing their output, as the biggest home builders in our country will not meet the Government’s housing building target alone.”
All housebuilders face barriers which prevent them from delivering new homes, including the availability of sites and the planning process. The research from Savills highlights that, even with available sites and planning, SME housebuilders are still unable to fulfil their potential.
For SME housebuilders, financial viability is a key part of the problem which is preventing the construction of new homes.
In January 2021, LDS launched a new Proptech engine enabling SME housebuilders to obtain instant Sales Guarantee proposals. The research paper explored the potential impact of LDS Sales Guarantees on the SME housebuilding market. LDS Sales Guarantees underwrite the financing of development sites, guaranteeing that SME housebuilders can call on LDS to complete on any unsold homes.
LDS Sales Guarantees remove major barriers of pricing and demand risk, opening up access to finance and completely transforming the viability of sites for developers and lenders.
This need to transform financial viability for SMEs is demonstrated by the fact that since its launch, over £1.5bn of LDS Sales Guarantee proposals have been issued.
Mark Hawthorn, CEO of LDS Sales Guarantees, said: “Obtaining planning permission isn’t the only obstacle to building homes even though it is the most focussed on. Research by the Local Government Association revealed that more than 1m homes in England have planning permission but are yet to start construction.
“A major factor preventing additional housebuilding is the decline of SME housebuilders. We commissioned this research to show that the decline of SME housebuilders has been driven by a number of factors, a very significant one being the ability to access development finance on viable terms. We’re committed to working closely with SMEs and the supply chain to fully understand the challenges, and will be carrying out ongoing research to inform our product development and to ensure we can help them overcome the hurdles.
“By guaranteeing to buy homes built by SME housebuilders, we are proving that we can transform the financial viability of SME housebuilding and enable them to build thousands more homes every year.”
Lucy Greenwood, Director, Residential Research and Consultancy at Savills added: “SME housebuilders have faced a number of challenges in recent decades, but there is positivity in the market. The potential is there for SMEs to increase their output, if more can be done to help them deliver the additional homes. Unblocking the finance barrier is a key step that will help enable this growth.”
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