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Why we all need to back the housing underdog

The UK loves an underdog. There is something irresistible about the story of the little guy standing up to the established players and leaving them with a bloody nose, whether it is Henry Cooper putting Muhammad Ali on the mat or the Wallabies trouncing the Kiwis in rugby.

At the Conservative Party conference, LendInvest championed the cause of the housing market underdog that deserves – and frankly needs – our support.

In recent decades, the housebuilding market has been taken over by the largest housebuilders. As a result, today more than half of the nation’s new homes are built by just eight firms.

As these housing giants have grown in stature and dominance, the small housebuilder has been pushed aside.

Back in 1988, there were 12,200 small property builders – defined as those building 100 units or fewer in a year – according to the Federation of Master Builders. By 2014 that figure had plummeted to just 2,400.

This would be a shame, but not necessarily a problem, if those housing giants were delivering the homes that we need. But they demonstrably aren’t. Housebuilding in the UK is meandering along, and shows little sign of improvement. The House of Lords thinks we need 300,000 new homes every year to satisfy demand, but last year we built roughly half that many (170,000). Right now, the idea that we will reach the Government’s target of one million new homes by 2020 looks like total fantasy.

The latest Department for Communities & Local Government figures reveal that work was started on 75,680 homes in the first half of 2016. That’s down from 77,480 homes in the same period of 2015. It’s just not good enough, but the large housebuilders don’t see the need to speed up. According to the Local Government Association, there are a record 475,647 homes in England that have been given planning permission but have not been built. By releasing new homes at the current slow pace, the big housebuilders ensure that they get the biggest possible price. Great for their balance sheet; not so good for the housing crisis at large.

Looking to the biggest housebuilders to do more is clearly not the answer. We’ve put the onus on them once too often. It’s time to look elsewhere.

If we are to have a healthy housing market, we need a more diverse market, with a variety of building firms of different sizes delivering different types of home.

That means getting behind SME builders, as well as community-led builders and self-builders.

It also means not focusing all of our efforts on building homes aimed at owners, but also devoting more energy towards properties designed for the rental market. Innovation comes from opening up a market to smaller firms with new ideas, which can do things differently and still deliver, and which can be nimble and flex to changing market demands.

We desperately need this innovative approach in the housebuilding market.

What is clear too is that, if smaller builders are to once again play a more meaningful role in the UK housing system, they need help. Accessing finance is evidently a problem. The IPF’s Development Finance Review 2015 looked at a sample of UK banks, non-UK banks and alternative lenders to identify the lending options borrowers would have at different loan sizes. Of the 30 lenders it sampled, 29 would lend to developers looking to borrow between £20m and £100m. In contrast, those looking to borrow up to £1m had just two lenders to choose from.

It’s welcome that the Government has clearly targeted tackling the funding gap with its £5bn Home Building Fund, which will be aimed primarily at small and medium-sized developers.

But focusing solely on finance would be a mistake. It is not just money that is holding back small developers; access to land at the right price is far too difficult. And while the Government has promised action here by opening up public land for development, little progress has been seen thus far. According to the National Audit Office in July, just 8 per cent of the Government’s target for public land release for homes has been achieved this Parliament .

And then there’s the skills void. If we are to have more small builders delivering more homes, we need to do more to equip those developers with the skillsets and knowledge they need. We have launched the LendInvest Property Development Academy to do just that. Consisting of a two-day course in London in November and an online knowledge centre, the Academy will guide would-be developers through the planning minefield, helping them understand the different types of construction contract and educating them on how to market those properties once they are finished.

The staggering number of applications we have already received to attend the Academy course is a clear sign that the appetite is there among prospective builders.

LendInvest has attended both the Labour and Conservative party conferences. Our mission is to educate the great and the good of the political world on what a difference small-scale developers can make to the housing market. That both the Communities & Local Government Committee and the National Housing Taskforce have held inquiries into the housing market over the summer, including looking specifically at the role of small builders, demonstrates that politicians are waking up to the fact that only by diversifying our sources of new housing beyond those building giants can we deliver the homes that the nation needs.

This is an underdog story that we can’t afford to see fail.

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