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Cynulliad Cenedlaethol Cymru |
National Assembly for Wales |
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Pwyllgor yr Economi, Seilwaith a Sgiliau |
Economy, Infrastructure and Skills Committee |
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Rhwystrau sy'n wynebu cwmnïau bach sy'n adeiladu cartefi |
Barriers facing small home building firms |
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EIS(5) BFSHBF03 |
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Ymateb gan NHBC |
Evidence from NHBC |
Executive Summary
· NHBC believes that small house builders play a vital role in meeting the increasing demand for new homes. However, this important part of the house-building industry is in decline and facing a number of significant challenges, in Wales and across the UK.
· Recent Welsh Government statistics reveal that during 2017-18, the number of new dwellings started decreased by 12% compared to the previous year in Wales, the lowest annual number recorded since 2013-14.
· NHBC statistics show that in 2017 4603 starts were registered in Wales with 4242 registered from Q1 – Q3 in 2018. (The Welsh Government’s own data from this time period at 5706 and 4667 respectively.)
· NHBC data for the third quarter of 2018 shows a total of 1346 starts, (this is an increase of 124 from 1222 for the same quarter in the previous year, based on NHBC records).
· NHBC has a total of 172 builders on its register in Wales. (Companies registered with NHBC are able to use the NHBC brand to promote their business, offer Buildmark warranty and insurance to their customers and access our technical advice and support).
· NHBC provided the UK small business statistics to the British Government’s 2017 White Paper: Fixing our broken housing market - which shows that, according to NHBC data, the market share of small builders fell from 28% in 2008 to just 12% in 2015 across the whole of the UK.
· NHBC published a report in April 2017 titled: Small house builders and developers: Current challenges to growth, a survey which looked into the issues faced specifically by small builders. (Information and figures used in this response are taken from this research report.)
· The Welsh Government’s housing-building agenda could be further supported if there were a greater number of smaller builders.
·
NHBC is happy to share our experience and expertise with the
Welsh Economy, Infrastructure and Skills Committee in further
detail.
About NHBC:
Established in 1936, NHBC is an independent insurance company in the new build market, providing a 10-year Buildmark warranty to homebuyers across the UK. Over 1.5 million UK homeowners currently benefit from its insurance protection.
NHBC does not build or sell homes; it is not a regulator and does not represent any part of the industry. Individual builders are ultimately responsible for the quality of the homes they build and sell to consumers.
NHBC cares passionately about new build quality and, as a non-profit distributing organisation, reinvests profit into the sector to support builders to deliver high quality homes. This is delivered through approximately 1,300 staff, including building inspectors, surveyors, engineers and claims teams.
NHBC plays an important role in the UK housing sector, helping builders to deliver quality new homes and supporting the industry with its Standards that cover 80% of all new homes. NHBC offers a vast range of comprehensive services to the industry to help them build high quality homes, and to ensure consumers have a positive experience living in their new build home with NHBC’s 10-year Buildmark warranty.
NHBC provides guidance and training to industry with up to 10,000 delegate days of training per year. Further to this, for 38 years NHBC has run the house-building industry's most prestigious awards programme - Pride in the Job. This is the only UK wide initiative dedicated to recognising site managers who achieve the highest standards in house-building and is instrumental in driving up the quality of new homes.
1) To assess the barriers facing small home building firms to include consideration of:
ü The availability and effectiveness of Welsh Government (and other) support and finance for small home builders
ü The availability of a skilled construction sector workforce
ü Access to suitable development sites
ü The Planning system and the extent to which it actively facilitates developments by small home builders
ü The dominant position of a small number of big firms
There
has been a significant reduction over the past 10 years in the
number of new homes built by small house builders and developers in
Wales and throughout the UK. Although its recommendations only
apply to England, the Ministry of Housing, Communities & Local
Government’s (MHCLG) Housing 2017 White Paper - Fixing our
broken housing market - reiterates the wide range of political
support across the UK for supporting small builders.
The White Paper also makes clear the scale of the decline in market share accounted for by small builders in the whole of the UK (defined as those building no more than 100 homes a year) from 28% in 2008 to just 12% in 2015 – based on data provided by NHBC.
Figure 1: NHBC data for UK housing registrations – The White Paper
To further explore the reasons for this decline and the factors limiting business growth in this sector the NHBC Foundation published a report in April 2017 titled: Small house builders and developers: Current challenges to growth.
The report builds upon the Foundation’s previous study in October 2014 (titled: Improving the prospects for small house builders and developers),and is based on focus groups held in different parts of the country with an accompanying survey, which generated responses from 468 companies from across the UK. 33 of the companies questioned were from Wales, 30 from Northern Ireland, 35 from Scotland and 370 from England.
The report identifies 3 main factors affecting the growth of small house builders and developers:
1. The planning process and associated costs – 38% of the companies surveyed ranked this as their most serious business challenge and 31% ranked it as their second main challenge. (This presents a more pessimistic view of the situation than in NHBC’s 2014 report.)
2. Availability and cost of viable land – 37% of the companies ranked this as their first and 34% as their second most serious business challenge. (This factor has also become a more serious concern since 2014, however it is particularly a challenge for small house builders and developers in England compared with other parts of the UK.)
3. Availability of finance – 20% of the companies regard this as their first and 18% as their second most serious business challenge. (This situation has, however, improved since 2014, with reports of better relationships with banks and an increase in the use of private funding sources.)
Figure 2: NHBC data showing the main factors affecting the growth of small house builders
1. THE PLANNING PROCESS AND ASSOCIATED COSTS
During NHBC’s research a four-point scale was used to understand which specific aspects of planning are affecting small businesses in the UK. Planning is an interesting example, as respondents recognised the need for a system to regulate development, but were deeply frustrated by the delays and costs associated with current planning procedures. However, communities continue to expect detailed scrutiny of development proposals that will impact on their areas.
NHBC
research revealed the main issues for over 40% of small house
builder and developer respondents with the planning process
are:
· the length of time required to arrive at a planning decision
· the unpredictability and inconsistency of the planning process (between local authorities but also between officers within the same department)
· Community Infrastructure Levy (CIL)[1] and other fees and tariffs associated with planning
· resourcing and quality of expertise within planning departments and difficulty of communicating with planning officers
· the cost and time necessary to provide specialist reports
Figure 3: NHBC data showing the effect of aspects of the planning process on small house builders
The planning process in Wales
There are notable variations by country in the different elements of the planning process that are regarded as impediments (Figure 3 above). The table below analyses the top seven issues, raised by over 40% of respondents overall.
This shows that the length of time for a planning application to be determined is a major issue in all countries/regions, but particularly in Wales.
Figure 4:
Percentage of companies rating each aspect as a serious impediment,
by country.
2.AVAILABILITY AND COST OF VIABLE LAND
NHBC research shows that the cost of land and the availability of
land are of equal concern to small businesses, with more than
three-quarters of small house builders and developers reporting
these as challenges or serious impediments. In total around half of
the firms who built no homes in 2017 said that land availability
and cost were serious impediments.
Currently 83% of the land in England and Wales is registered. Opening up land and property data will make it easier for communities and authorities to engage in and make informed decisions about planning, development and investment.
The graph below displays this information by country, and shows that in Wales, land cost has been listed as a more significant barrier to small builders than land availability.
Figure 5: Land availability and cost; percentage rating these issues as a serious impediment to business.
3. AVALIABILITY OF FINANCE
NHBC research from 2014 found that 42% of small house
builders and developers described the limited availability of
finance as a serious impediment to their business. This situation
appears to have improved with only 20% identifying
availability of finance as their number one business challenge in
NHBC’s 2017 research.
When questioned in more detail, between 26% and 45% of participants described at least one aspect of financing their business as a challenge or a serious impediment:
Figure 6: Effect of finance-related issues on small house builders’ and developers’ businesses.
4. OTHER FACTORS IMPACTING ON SMALL HOUSE BUILDERS AND DEVELOPERS
NHBC research
also identified three additional issues impacting small builders,
outside of the main three already raised:
· Poor service provided by utilities and telecoms companies - with Welsh Water frequently being mentioned.
· The requirement to pay council tax on completion of the build
· Shortage of skilled trades (presenting a challenge to the industry widely not just small builders)
Although NHBC results show that only 3% ranked a shortage of skilled labour as the main constraint to their business, 41% consider the availability of skilled trades as a serious impediment or a challenge. Those attending the focus groups indicated that the main issue affecting their relationship with trade subcontractors is the larger house builders’ ability to provide greater continuity of work, with local trades therefore being less available for smaller companies.
Brexit
Naturally, Brexit causes uncertainly to small house builders, who suffered most during the 2008 financial crash, and are fearful of this occurring again should Brexit cause a recession.
Brexit uncertainly is also of a concern with land purchase items.
Builders are unsurprisingly concerned about purchasing land that is
towards the top end of the market price - if Brexit causes a
recession. Builders of any size do not want to be left with land
they purchased at a high price, and then need to wait for the
recession to end before building on it in order to realise the
expected returns from when they purchased it. (Some builders
experienced this in the most recent financial crash and have had to
wait ten years for the market to fully return.)
2) To understand the proportion of new housing in Wales currently delivered by small home builders, to include consideration of:
ü The impact of Help to Buy Wales
ü The potential impact of increasing the proportion of new housing in Wales delivered by small home builders
ü The extent to which small home builders are involved in the delivery of affordable housing (including the impact of current procurement rules)
When
asked to determine which of the most recent government initiatives
has proved most effective to the small house build sector,
respondents to NHBC’s research quoted:
1. Exemption from building affordable homes on developments of under 10 Units
2. Help to Buy scheme
The exemption from building affordable homes for developments of under 10 units has been particularly positive for small house builders and developers in England. 44% said this has had a positive effect, but less so in Wales at only 27%.
By size of business, the Help to Buy scheme has mainly benefitted those building 6 or more homes, while the exemption from building affordable homes has benefitted all sizes of business within the scope of this report.
Figure 7: Government initiatives which have had a positive effect on small house builders and small developers businesses.
Innovation
Smaller builders are actively looking for new methods and seeking to innovate. NHBC is highly supportive of the industry as it seeks to innovate and use Modern Methods of Construction, (MMC) which has significant potential to enhance housing delivery.
NHBC requires all homes to meet the same level of technical standards whether built by MMC or conventional construction. Regardless of build type, if the home is covered by NHBC homeowners will receive the same protection.
NHBC has accepted 52 MMC systems as of December 2018 – a full list of the systems is available via the MMC online Hub on NHBC’s external website: www.nhbc.co.uk/mmchub
NHBC
has conducted research into with two published reports and would be
happy to share these with the Committee, if this would be
beneficial to this or future inquiries.
· Modern Methods of Construction: Views from the Industry, 2016
·
Modern Methods of Construction: Who’s doing what,
2018
Conclusion
Small house builders play a vital role in meeting the increasing demand for new homes. However, this important part of the house-building industry is in decline and facing a number of significant challenges in Wales.
NHBC’s research demonstrates how the smallest developers (those building 10 homes or less each year) have been worst affected by the decline in recent years. It also ranks which obstacles to growth are deemed most daunting by small developers.
NHBC data on new home registrations (which we share with the Welsh Government and MHCLG), has been widely used to show the decline among small builders.
Through engaging with small builders as part of our research, NHBC has determined the following three principal obstacles identified by house builders:
1. the time and costs involved in navigating the planning system
2. the availability and cost of land suitable for small builders
3.
the availability of finance
To facilitate an increase in output within this sector of the market, key constraints need to be addressed – in particular, the challenges imposed by the planning process.
Greater certainty and more standardised approaches, clarity concerning the fees and tariffs, coupled with a more responsive service from planning departments would increase predictability. This would also significantly help to speed up the process, reducing the timescale and increasing the number of homes built. These measures ideally need to be coupled with an increase in availability of smaller sites (accommodating up to 10 homes) if they are to make a significant difference.
· NHBC would encourage the Committee to examine closely the evidence from Figure 4 in this report, whereby the issues of concern to small builders were those specific to the planning process in Wales.
· Length of time to get a planning decision was ranked the highest concern in Wales out of the whole of Great Britain.
· The cost and time of reports in the planning process was also of highest concern in Wales out of the whole of the United Kingdom.
· NHBC hopes that in sharing data from its research, it has been useful to the Welsh Economy, Infrastructure and Skills Committee in conducting this inquiry. NHBC has also submitted evidence to the Welsh Government Consultation: Delivery of housing through the planning system, and would be pleased to share a copy of this response, if this would be helpful to the Committee.
· NHBC supports the work to enable small builders to overcome the barriers they face and, so they can continue to play a vital role in Wales’ housing delivery.