SME developers play a crucial role in UK housing delivery. They are more nimble than their larger counterparts, often more innovative, and able to transform smaller sites that get overlooked
However, the current picture is increasingly challenging. Pandemic-driven supply chain and labour challenges, mixed with a costly and protracted planning system, mean that SMEs are facing strong headwinds.
Unlike the bigger operators, SMEs simply don’t have the deep balance sheets required to ride out long delays without consequence. Looking back, the industry lost around 30% of SME developers in the 2008 financial crash – the majority of which didn’t return. If the current situation continues, I fear the sector may be heading towards a similar outcome with its downstream impact on housing supply.
Supply chain issues
The entire supply chain is struggling with staff and materials shortages. This is incredibly frustrating, particularly on sites that are so close to practical completion with just a few outstanding items required.
Bulb’s recent unexpected collapse into administration has left us scrambling to find another supplier for energy meters for one of our sites, while at another, our contractor’s cleaning company has been short on staff which has caused practical completion to be delayed.
Like the SMEs they work for, these contractors are often small firms themselves and don’t have the financial means and staff to absorb these obstacles or forward-buy. As I write this, fresh concerns regarding the Omicron variant of Covid-19 will not be making for comforting reading around labour concerns.
Where our contractors can source materials, their price continues to rise and is forecast to do so well into 2022. Developers are having to build in this inflation into future sites, which risks making some projects less viable. Contrary to some beliefs, developers – particularly SMEs – don’t have infinite margins to play with.
The labour shortage also means that for in-house roles, salaries have gone up significantly. We simply can’t compete with the bigger players on cash – this is not a new problem but one that has reignited since the pandemic.
On a more positive note, what SMEs can offer is flexibility, particularly around working arrangements, an opportunity to grow and have access to all aspects of the business and a close knit company culture where everyone feels invested. Aligned to this, we have recently allocated 15% of our company’s shares to employees, allowing them to have a tangible stake in our journey.
However, it’s much further back along the development timeline where the hurdles first start to appear. Planning has long been a challenge, with a system that is geared up to those with the pockets deep enough to play it.
Planning delays of just a few weeks can be disastrous for SMEs who are already heavily leveraged with land and consultant costs. Fruition has adapted to this by creating Joint Venture partnerships which means that we hold far fewer costs on our balance sheet during the planning phase.
Ultimately, most planning departments are under resourced and over-worked with few people who have the authority to sign things off, creating a bottleneck at the top. As a result, communication is painfully slow and there is only appetite to engage with vanilla schemes that don’t always consider the bigger picture.
I’m not asking for an open door on all schemes but at least an element of timely consideration or dialogue. We recently proposed a revised scheme on an existing site which was larger and would have brought more homes including affordable homes to the borough in question, yet we were faced with total lack of enthusiasm which was quite demoralising.
SMEs are often the developers that bring innovation to the sector, however we need willingness at the other end to match this innovation and create lasting change.
This under resourcing is further exacerbated by a swathe of European planners leaving the sector, with little sign of replacement. I would implore the government to allocate more funding towards local planning departments, to resource and upskill – spend a little to gain a lot. A faster planning system with better communication would allow more homes to be delivered and more economic benefits to be brought to local communities faster. It is a win-win.
The UK has some brilliant SME developers doing fantastic things. I just hope that we can ride out this storm and continue to make our mark on the housing landscape.
Chief Operating Officer
LinkedIn: Fruition Properties