Smaller developers squeezed out of the housing market by planning rules and skills shortages

(Title Image: Hygrove Homes)

Economy & Infrastructure Committee
Barriers facing small home building firms (pdf)
Published: 11th August 2020

  • Proportion of new homes built by small companies has fallen from 40% to 12% since the late 1980s (UK figures).
  • Dwr Cymru defends itself from criticism over placing excessive requirements on small housebuilders.
  • RCT’s “plot shop” should be rolled-out across Wales to market small sites to SME developers.
  • Only 3% of “Help to Buy Wales” funding went to small housebuilders.

“Creating the circumstances where small homebuilders can build more homes is good for addressing housing needs and fits well with the Welsh Government’s commitment to develop the foundational economy. It creates new opportunities to develop in-demand skills in the construction sector, and to support the kind of community-based Small and Medium Enterprises (SMEs) that retain and recycle their profits in the areas where they live and work.”
– Committee Chair, Russell George MS (Con, Montgomery)

Housing deficit of 20%

Ifan Glyn from the Federation of Master Builders said Wales is falling short of official targets for new home completions by at least 20% – working out at around 1,900 fewer houses being built than is required each year.

Witnesses couldn’t agree on whether there was a “crisis” for small housebuilders or not, but they agreed there were challenges.

Those challenges include a lack of skilled construction workers and tradespeople, the market dominance of the “Big Five” housebuilders, locally-variable planning requirements often being the same for a 10-home development as a 100 or 1,000-home development, lack of land suitable for small developers (generally defined as 30 homes or less), as well as excessive requirements from utility companies.

Dwr Cymru was picked out for specific criticism because it holds a monopoly on water services in Wales, but they responded by saying their charges were “cost-reflective” and they are legally banned from making a profit on statutory requirements.

The Welsh Government thought regional working through local government reforms may help streamline the planning process, such as the standardisation of factual planning guidance.

There was some support for a similar approach to small plots as that taken by Rhondda Cynon Taf Council, where a “plot shop” actively markets smaller plots and windfall sites to SME developers.

Finance dried up

Swansea-based Hygrove Homes told the Committee the major high street banks have effectively stopped lending to small housebuilders.

The Federation of Small Businesses added that cash flow for smaller developments was often negative until the point of sale, resulting in frontloaded costs and requirements “having a significant bearing on the fortunes of developers”.

Witnesses praised funding initiatives from the Development Bank, but the finance doesn’t cover the upfront costs of planning. Additionally, only 3% of Help to Buy Wales funding went to cover the cost of homes built by small developers.

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