SMEs muscle back into the housebuilding market

July 24, 2017 / Isla MacFarlane
SMEs muscle back into the housebuilding market

The latest data shows that small and medium-sized builders buying more land and building more homes; however, price hikes and labour shortages threaten to silence smaller sites.

The latest data paints a mixed picture for SME housebuilders. On one hand, they are buying more land and increasing their output. According to Savills 2017 Housing Sector Survey, SME housebuilders bought 89% more land in the year ended 30 June 2017 than in 2016.

New financial products such as ‘Go-Develop’ – which offer 100% joint venture land and build funding for property developers – have emerged, supporting those with little equity on smaller sites.

Two examples of small housebuilders supported by the fund are Hallmark Developments (Essex) Ltd which received funding to help it complete the final phase of its Priory Hall project in Halstead, Essex and Poltair Developments which received funding to unlock a stalled site in Padstow.

Medium-sized housebuilders have also benefitted from government funds and more accessible finance, buying more land and increasing the number of homes they build.

Savills sold 22% more plots to medium-sized housebuilders in the year to June 2017 compared to the previous year.

Fairview and Gleeson are two examples of medium-sized housebuilder which have expanded their output considerably in the last year. Their completions increased by 76% and 20% respectively to 767 and 904 homes per year in 2016.

However, inspite of the encouraging figures, political uncertainty is beginning to weigh on the sector.

The SME construction sector grew at a slower rate in the second quarter than the first three months of the year, according to the Federation of Master Builders (FMB).

Key results from the FMB’s State of Trade Survey for Q2 2017 showed that almost one in two construction SMEs predict rising workloads in the coming three months, with just 9% predicting a decrease in activity.

However, 83% of builders believe that material prices will rise in the next six months. It is also becoming increasingly difficult to hire key trades: 60% of construction SMEs are struggling to hire bricklayers; 57% are struggling to hire carpenters and joiners; and 47% are struggling to hire plumbers.

Almost two-thirds (62%) of construction SMEs expect salaries and wages to increase in the next six months.

Brian Berry, Chief Executive of the FMB, said, “Rising material prices and salaries could be starting to dampen growth among construction SMEs. However, it is encouraging to see that the sector has continued to grow despite the recent snap General Election and the resulting hung Parliament. The construction SME sector is particularly vulnerable to any dips in consumer confidence that might come from periods of political uncertainty. It may be that a number of home owners decided to delay any big spending decisions on new extensions or loft conversions while the election campaign was underway – this would account for the slow-down in growth seen in the second quarter of 2017.

“Looking ahead, almost two-thirds of construction firms expect wages and salaries to increase over the next six months and this is in contrast to stagnant wages elsewhere in the economy. Rising salaries are undoubtedly the result of the escalating construction skills shortage – construction workers know their worth and are demanding higher wages from their employers. The majority of construction SMEs are struggling to recruit key tradespeople such as bricklayers and carpenters and we’re seeing shortages in other trades, such as plumbers and plasterers, starting to creep up. With Brexit on the horizon and worrying talk of the so-called ‘Tier 2’ immigration system replacing the free movement of people, the construction industry urges Ministers to bear in mind their strategic house building and infrastructure targets before pulling up the drawbridge on EU migrant workers.”

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