Access to funding is stifling small housebuilding firms
Small housebuilders are having problems accessing vital funding that can enable them to address the housing supply issues across the UK, an industry study has claimed.
According to the Federation of Master Builders, 54% of small and medium sized firms have described accessing finance as the major barrier to building new property.
That figure has risen from 50% 12 months ago and FMB chief executive Brian Berry has suggested the situation has worsened over the past decade since the financial crisis, rather than showing signs of improvement.
The latest data comes despite government efforts to assist the construction sector with the £3 billion Home Building Fund, designed to aid development and infrastructure projects.
Small housing developers accounted for around 12% of the total number of UK houses built in the last year, meaning they were responsible for the construction of an estimated 20,000 properties.
The number of SME housebuilders has steadily declined during the last 25 years, dropping by around 80%, while the financial crisis saw a third of businesses in the sector cease trading between 2007 and 2009 alone.
With cash flow issues often a key factor behind the firms facing insolvency; many lack the additional cash required to front early costs on large projects.
Pre-lend reviews can assist businesses by assessing risks ahead of lending and by providing a look at a company and its requirements for finance – but it may not be enough to satisfy lending criteria.
The Home Builders Federation has suggested that if SME housebuilders were to return to construction levels such as those seen in 2007, it could result in 25,000 new properties being developed annually.
Projects at small sites have stalled through a lack of lending and Mr Berry suggested that many banks are doing the “bare minimum” to help having tightened their lending criteria.
The Government launched a housing White Paper in early 2017 that emphasised the need for the construction sector to be less reliant on a small number of large house building firms.
However, the availability of finance and land for development, alongside a number of planning constraints, have left many hurdles for housebuilders to overcome.
As a result, a housing shortfall exists – around 153,000 properties were completed in the year to June, but that is nearly 100,000 short of government targets.
By Phil Smith