SME residential development and how it can help unlock the housing crisis
At the beginning of December, I was invited by Close Brothers Property Finance to the launch of their State of Play report into the current experiences of SME (small and medium enterprise) home builders in the UK market. Their report, produced in collaboration with Travis Perkins and (importantly) the Home Builders Federation (HBF), has been based on a survey of small builders and a detailed dataset, giving them a solid understanding of the issues these developers face. It’s the fifth edition of the report, and it’s an impressive piece of work.
This "co-housing" project was built by developer TOWN, in partnership with the local authority. A good story to tell about how SMEs can work with the public sector to bring new ideas to market. (Phil Cooper, 2021)
The report’s findings
To be honest, the summary of their findings isn't revolutionary and tells a story we know all too well, especially speaking as an architect who does a lot of work with SMEs and has spent a lot of time trying to understand their problems and help with some solutions.
SMEs struggle with a competitive land market – one MD I spoke to at the event found themselves bidding against 28 other developers, having spent over £40k preparing their bid.
They face difficulties in planning – we all do, but a minimum of a year from submission to decision is now typical, with all that entails, with rising costs in the background and a perilous viability in the foreground.
The affordable housing market has slowed, meaning that offers secured from Housing Associations for Section 106 homes while bidding are falling away by the time completion on site nears, leaving a massive hole in the viability spreadsheet.
Alongside all this, build costs have risen massively in the last two years, and while this affects everyone, SMEs don’t have the same buying power as their national brethren. The sales market is still constricted, mortgage rates are higher than we've been used to, and there's less skilled labour available following Brexit. Not a happy picture...
How do we address this?
So what can we do?
Well, the talk in the room was all about using the Home Builders Federation (HBF) to lobby government to make policy changes which encourage SME development.
For example, wouldn't it be grand if there was a Nation Planning Policy Framework (NPPF) requirement for 15% of all new homes to be built by regional, British-owned SME builders? But is it realistic? Can we reasonably expect the government to consider this sort of policy when it can easily be argued that it would put the brakes on housebuilding rather than drive it forward?
A great example of an SME building innovative, quality architecture, as well as responding well to site context, and making it a feature of the scheme. (Phil Cooper, 2022)
Why should the government be motivated to do this?
What's in it for the government other than a vague notion of keeping profits onshore and promoting SME businesses generally? Where's the benefit for SME developers if all they're doing is producing a product which is similar to the nationals, with only a nod towards higher design quality? The nationals can work faster, build in more places, operate with lower margins and thus deliver greater planning gain. Most SMEs are just building the same suburban product, it just might have a slightly fancier facade and a higher-spec kitchen.
So what should the motivating factor be?
Part of the advantage of being an SME is the ability to operate differently from the big boys. There are fewer checks and balances; there isn't a faceless PLC board auditing each and every site to squeeze every last inch out of the viability. There isn't the requirement to build the same product on every site; there isn’t the same need for absolute standardisation (although we think that variety, good architecture and innovative homes don’t have to mean you can't standardise)
This means that:
SMEs are nimble, can be smart and can look at each site carefully and uniquely produce a rational, clever response to the site, its location, its context and its market
SMEs can produce a product that isn't either a suburban home or a high-rise urban flat, SMEs can produce the product that the market doesn't yet know it needs
SMEs can promote clever design that achieves urban density in a suburban context without appearing compromised
SMEs can bring us curated, integrated communities, they can enhance neighbourhoods, and regenerate towns in ways that the PLCs aren't interested in doing.
I think we'll find that if we start pushing at this envelope, our land bids will float to the top of the pile, the planners will become more engaged and let us make progress, and we'll be designing schemes which dodge viability problems by thinking innovatively from day one. We'll also be occupying a unique place in the market, offering a product no one has seen before, and building exciting schemes the public wants to know more about and become a part of.
All of this seems to be like great motivation for the government to encourage SME development.
Hope Architects were pleased to work with Northstone, a start-up regional developer, on their award winning site in Lancashire. (Phil Cooper, 2022)
Embracing SMEs and their role in British home building
This is the small developer story. Let's, by all means, be mindful of the challenges we face, but let's celebrate what we can do that others can’t, let's make the positive case for how SMEs can help rejuvenate British home-building!
Hope Architects is partnering with VM Finance, Mansell Building Solutions and Place North to stage a conference about how innovation in SME house building can help us build more and build better. This blog is just the start of the discussion, and we'd love to see you there and hear your thoughts.
You can get your tickets from the Place website here.