SME housebuilders

The decline of SME housebuilders



Theresa May’s announcement that the government will commit £2bn to build new social housing is unlikely, in my opinion, to achieve three things.

  1. Convince prospective Corbyn voters that the Conservatives care about the poor.
  2. Convince Conservative voters that this government actually believes in standard Conservative ideas.
  3. Actually make a dent in the housing crisis.

 

Put simply, the policy is a fake bone, thrown to an imaginary dog, in the wrong direction.

It is true that the decline in government-built homes since the 1960s has never been compensated for by private builders. However, it would be a misreading of history to assume that the only way to solve the housing crisis is to return to a prelapsarian era of state home building.

Throughout the 1980s, while the number of state-built dwellings were decreasing year-on-year, the number of privately built homes was on a buoyant upward trend, growing roughly 75% from 118,000 in 1981/82 to 207,000 in 1988/89. Since the 1990s, however, the growth of privately built new homes has flat-lined.

It is no coincidence that 1990 saw the introduction of the Town and Country Planning Act, which reversed the de facto position of planning departments to be against approving development. This new astringent regulation – along with subsequent planning reforms, such as the 2010 reclassification of garden land to protected greenfield – has had dire consequences for the private construction sector, with a particularly lethal blow being dealt to the dad’s army of small- and medium-sized builders, who once contributed significantly to the output of new homes.

After decades of growth since the 1960s, the number of SME housebuilders declined by over 20% in 1990 alone, and their numbers have undergone a slow death ever since. In the late 1980s, SME builders built 40% of all new homes, in 2016 this proportion had fallen to a mere 12%.

No story about the decline of housebuilding is complete without discussing the decline of these SME builders and, importantly, their distinctness from the large-volume builders who are either unwilling or unable to provide the homes the nation needs. SME builders have incentives to build out quickly due to their limited cash holdings and, furthermore, are able to unlock the thousands of smaller sites which are unviable to the volume builders.

Mark Littlewood of the Institute of Economic Affairs opined that: “People, not governments, should decide where homes should be built.” However, many wrongly assume that Littlewood’s hope has actually been a reality over the last four decades. Closer to the truth is that the housing sector has many hallmarks of a state-run industry, not least because the allocation and use of its key raw material, land, is strictly monitored and controlled by the government. Private homes builders, especially SMEs, have been the victims of an increasingly onerous and often Kafkaesque planning process, and as is a hallmark of Kafkaesque systems, it is the victim who is ultimately made out to be the villain and the culprit the hero.


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