Time the government moved beyond white papers and warm words—and committed to really helping small property businessesby Christian Faes / September 25, 2017 / Leave a comment
If you were to compare the line-up of housing policy debates at this year’s party conferences with the agendas that rolled out last year, you might be forgiven for thinking the exact same conferences are taking place. The subject of housing—or, indeed, the endemic lack of new housing—will dominate policy discussions at conferences once again. The future of housing is an issue of huge strategic importance to the British economy and society.
One year on since the Communities and Local Government Secretary, Sajid Javid, promised a step change in the government’s approach to get Britain building, the reality is that very little has changed. We are about to enter a new conference season with an almost entirely unimplemented Housing White Paper, a new housing minister (yes, the tenth in a decade), and a profoundly familiar rallying cry from those of us who want to see fundamental change in the future of UK housing.
There is public and political consensus that too few homes are being built. Successive governments have set housebuilding targets that they’ve failed to meet. At the same time, the housebuilding market has become monopolised by a small group of dominant companies.
This reality isn’t working. It’s time to reset the record, change the tune.
By reinstating true market plurality, we have a great opportunity to fix this problem. In an oligopoly where even the largest players are not incentivised to outperform and targets are consistently missed, increasing the level of competition by reintroducing more players is a healthy, practical solution.
Small and medium sized property professionals are essential for a healthy housing market but have been in sustained decline for decades. Since the last housebuilding boom of the late 1980s, the number of property SMEs active in the market has been decimated, falling by 80 per cent. In 1988 small builders were responsible for four in ten new homes built compared with just 12 per cent today. The ones still in operation are forced to meet a tax and regulatory framework that distorts the market in favour of the larger housebuilders and an increasingly constrained funding environment. Thirty years on, another generation of property SMEs risks disappearing from the sector as market conditions constrain their ambitions to scale up.
The impact of this decline on the economy is obvious. We complain that the country has a productivity problem and we agree, by and large, that the UK’s small and medium-sized businesses are the backbone of our business infrastructure. Yet, we are settling for a property market in which the status quo saps the energy, desire and inclination of would-be entrepreneurs and SME business owners to give it a go—and put more much-needed new houses on streets.
The impact on communities is equally burdensome: an undersupply of homes inflates house prices and exacerbates the gap between property owners and those who cannot find an affordable place to rent or buy.
So as we head into conference season, the agenda is clearer than ever.
Lack of access to land is a crippling injustice facing developers of all sizes, SMEs in particular. Ministers must lay the foundations mooted in the housing white paper; reforming the planning system to allow for greater diversity in the sector; intervening in the market to promote competition; and designating quotas of public land for SMEs to purchase at preference.
Access to finance has been an overarching challenge for SMEs since the dawn of the financial crisis. Traditional banks, building societies and other lenders exited the SME lending market in droves; to date, many have not returned, held back on account of capital adequacy requirements they can not satisfy, or unable to secure a meaningful margin to make lending worthwhile. While some property SME lending has reemerged, particularly among alternative and non-bank specialists, we must be able to rely more heavily on putting government money to work to solve this national economic and social problem.
The Homes and Communities Agency, which administers the government’s housing stimulus package—including a £3 billion homebuilding fund—is yet to demonstrate how it is supporting new entrants into the sector; nor is there clarity about how much money has been deployed one year on from the fund’s inception. The Agency would benefit from working more with intermediaries in the market, like experienced lenders, to disseminate the funds fast and efficiently. The state-backed British Business Bank is also well positioned to accelerate this growth, by working with intermediaries to disperse its capital to property SMEs for the first time, in the same way that it furnishes other sectors with funds.
The life of a property SME owner pales in comparison with an entrepreneur’s life across a variety of alternative sectors. First, the tax burden must be reduced if we expect property entrepreneurs to invest their time, capital and expertise in their communities. SMEs face expensive duties that can hold back cashflow and future investment. Reforming stamp duty would be the first step in driving down the cost of business for small-scale property entrepreneurs, incentivising more to make homebuilding a long-term career choice.
Reducing tax burdens is not the only financial stimulus needed to encourage more property SMEs into the market. Investment incentives do not exist in the property sector as they do in others. For instance, property entrepreneurs cannot benefit from initiatives like the Enterprise Investment Scheme which support them to raise startup capital, nor are their businesses eligible for the benefits of operating within a local Enterprise Zone which can ease cashflow.
If we are to encourage new entrants to the property market, they need to know that their businesses will be treated the same as start-ups and scale-ups in other productive sectors. It is detrimental—both economically and socially—that the average operator of a local coffee shop receives far more government support than the property developer that built the shop that the business will operate from. Governments have prioritised incentives to encourage enterprise and entrepreneurialism across many sectors from retail and leisure to engineering, healthcare and manufacturing but small property businesses have been forgotten and have suffered as a result.
The prime minister pledged this year to open up the housing market to SMEs. She has the industry’s backing. To achieve this, it is time to move beyond white papers and warm words. Let’s make conference season 2017 the time that we organise and find solutions. The government and opposition must start at the very foundations of the housing industry. Let’s not expect non-incentivised big housebuilders to do the job for us. Instead, we must give SME businesses the Westminster-backed engine and impetus it needs to get the job done. Realising the potential of SMEs in this way will take real political leadership, but if achieved, will reconstruct the failing housing market and deliver more homes of every type.
With the support of LendInvest, Prospect will be hosting a round-table discussion at the 2017 Conservative Party Conference on how what can be done to support do small scale house-builders need. Confirmed speakers include: Peter Aldous MP, Vice-Chair, APPG on Self-Build, Custom and Community Housebuilding and Placemaking; Richard Bacon MP, Chair, APPG on Self-Build, Custom and Community Housebuilding and Place-Making; Brian Berry, Chief Executive, Federation of Master Builders; Tom Bloxham, Founder and CEO, Urban Splash; David Ellison, Planning and Highways Committee, Didsbury West Ward; Christian Faes, CEO & Co-Founder, Lendinvest; Grainne Gilmore, Head of UK Residential Research, Knight Frank; Chris Philp MP David Rudlin, Managing Director, URBED (Urbanism Environment and Design); Christian Spence, Head of Research & Policy, Greater Manchester Chamber of Commerce; Carolyn Uphill, Chairman, National Landlords’ Association; and Marc Vlessing, CEO, Pocket Living.
If you would like to register your interest to attend our events or to find out more about our thought leadership programmes, please email Saskia Abdoh.