The chronic housing shortage is being made worse by the reluctance of banks to lend to small housebuilders, the Federation of Master Builders has claimed.
Britain’s largest trade association for the construction industry said that nearly half of all small housebuilders had reported that sites in which they were interested had stalled amid a lack of lending.
Small builders are seen as vital part to addressing the housing shortage as they are more likely to buy plots of land that larger developers ignore.
“Banks are doing the bare minimum in trying to help. Things haven’t improved since the financial crisis,” Brian Berry, chief executive of the federation, said. “They tightened up their lending criteria and have adopted a blanket approach where they treat all small and medium-sized housebuilders as high-risk.”
Banks reined in lending to housebuilders after the crisis, implementing strict lending criteria requiring developers to have a high level of capital, which is difficult for smaller builders that cannot rely on a large land bank and which tend to have tight cashflow.
Small housebuilders reported that access to finance has worsened over the past year, with 54 per cent of companies saying that lack of finance was one of the biggest constraints on their ability to build more houses. This compared with 50 per cent in 2016.
When asked to rate lending conditions for residential development from zero to five, the average score fell to 1.63, from 1.85 last year, the first drop since the question was first asked in 2013.
About 23 per cent of all new homes are built by housebuilders that complete fewer than 500 properties a year, compared with 44 per cent in 2008.
The economic downturn forced hundreds of small housebuilders out of business. However, unlike in previous cycles, the number scarcely recovered as the economy improved. This has led to a dominance of big housebuilders such as Taylor Wimpey, Persimmon and Barratt Developments, which have delivered record profits and margins of more than 20 per cent since 2012.
The housing shortfall remains significant, with 153,000 homes completed in the year to June, nearly 100,000 fewer than the government’s target of 250,000. This has pushed up prices, causing home ownership to fall to a 30-year low.
Local authorities have to show the government that they have a five-year plan for housing in their area, which usually leads to the allocation of large sites that go to the big housebuilders. Sixty-two per cent of housebuilders said that the availability of small parcels of land was their biggest constraint.
Mr Barry said: “If you were to use the smaller plots, you would be using local housebuilders, there would be less local opposition and you are keeping money in the regions rather than with the larger housebuilders who bring in their own labour force and then leave again.”
[our thanks to The Times]