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Small is beautiful… When it comes to housing supply

A new Centre for Policy Studies (CPS) report caught Martyn Jones’ attention this month. The report, Housing Guarantee, argues that small and medium sized contractors (SMEs) need to play a much greater role in the housing sector, including getting priority when public sector land is sold for housing.

The CPS report calls for changes to the planning system to open up the market and allow better access for SMEs as part of the effort to diversify housing supply. The report argues that there should be less focus on increasing the number of planning permissions going through the system and more reforms helping small and medium sized house builders to access land.

Housing Guarantee highlights the fact that the top 10 house builders currently build 40% of all new homes, with the top six controlling around 33% of the market. The six biggest house builders alone currently have roughly one million plots in their strategic land banks, which is nearly the equivalent of the target supply across England over the next five years.

According to the CPS, this means smaller builders often face challenges obtaining land and risk being squeezed out of the system all together. While they built around 40% of homes in the 1980s, today they build 10%.

To date, attempts to increase the housing supply have focused on large volume builders and increasing the number of planning permissions going through the system. However, according to the report, the 2010 planning reforms led to permissions rising to over 350,000 which only resulted in 200,000 new homes being built. To increase the number of houses being delivered, the report recommends selling public sector land to local house builder SMEs.

It also recommends a housing delivery test for local authorities based on the number of houses built for the community, not planning permissions granted and, significant in this context, introducing panels of local builder SMEs

Minister of State for Housing, Chris Pincher MP, commented: “This CPS report is a very welcome contribution to the debate around both house building and planning reform”. It highlights the important role that SMEs can and should play in delivering more homes and helping the UK’s economy build back better. “A successful SME sector is crucial in our shared objectives of planning reform and increased house building,” he said.

But are our local SME contractors ready for this crucial role? And what can be done to support them?

Back in 2003,a report by members of the Bristol Constructing Excellence Club identified both the strengths and vulnerabilities of SMEs. The strengths identified in the report applicable to housing provision are: the ability to respond to the needs of niche markets by taking on jobs that are too small for larger organisations (in this case pockets of land that that are too small for larger house builders); the ability to get close to customers and accommodate changes to their requirements; and to respond more flexibly to change. And, staff are more closely linked to each other, the company, and local communities.

But what about SME vulnerabilities? Again, in the context of housing provision, they include dictatorial owner/manager ethos where the owner controls everything; a lack of access to capital; lack of formal structure and operating system; decision making based too much on ‘gut feeling’; and a lack of formal time and cash flow management.

Supporting SME house builders to build back more and better requires a crosscutting strategy building on their strengths and addressing their vulnerabilities. That includes key areas such as more easily accessible finance as set out in CESW’s publication, Development Finance: A best practice guide to lending.  [The CESW guide provides a means by which developers, funders and construction teams can work together making the funding process more collaborative and efficient – making it easier for SMEs to access funding, reduce risk, increase their pipeline of work and improve their profitability.]

Other support includes national and local government implementing appropriate macroeconomic policies; the capability and desire of the stakeholders in housing developments to provide conducive microeconomic business environments; simplified legal and regulatory frameworks; supportive education and learning; and the supply of sufficient skilled labour. And last, but by no means least, the capacity of SMEs themselves to implement up-to-date operating and business practices and work collaboratively in the local panels proposed in the CPS report.

These panels should be founded on the principles of Constructing Excellence. More specifically, Constructing Excellence could help on the demand side by encouraging housing development stakeholders to create more conducive microeconomic business environments for SMEs, and on the supply side, by supporting SMEs in adopting up-to-date operating practices and business strategies, and offering digitally optimised smart construction.

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