Official data from the Scottish government shows that targets are not being met, despite the improvement over the periods dominated by Covid. The number of all-sector new build homes completed in Scotland increased by 40% in the latest year to end of March 2022 to 20,767 homes, compared to 14,867 homes completed in the previous year, during which activity levels were impacted by coronavirus lockdown measures. Despite this increase, the latest annual figure is 6% (1,357 homes) below the 22,124 homes completed in the pre-pandemic year to end March 2020.

According to recent independent research commissioned by Homes for Scotland (HFS), there is a cumulative undersupply of new properties approaching 100,000 homes. Using data for 2019 (when around 22,500 homes were built), the research established the benefits of increasing completion levels to 25,000 per year — by doing so, HFS estimates that this could result in £52m of extra local infrastructure investment, 8,000 additional job opportunities, and a £300m boost in economic output.

The Scottish government has an ambition to deliver 110,000 affordable homes by 2032, of which at least 70% will be for social rent and 10% will be in remote, rural and island communities. It is certainly faring better than England in this regard — across the four years between 2017/18 and 2020/21, Scotland has seen 62% more affordable homes delivered per head of population than in England, and 71% more compared to Wales. In addition, over nine times as many social rented homes were delivered per head of population in Scotland compared to England.

That said, Scotland still has a lot of work today if it is going to meet its own targets for new homes.

Fundamentally, SME housebuilders in Scotland need more support, especially in terms of planning. Due to the level of reports required, the conditions attached to planning, and the amount of front-loaded costs associated with a planning application, it can be seen as a real gamble. Indeed, it used to be widely said in Scotland that SME housebuilders would be better off taking £50,000 to the casino than attempting to get sufficient planning for a ground-up development and making their project viable.

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While there have been some organisations that historically provided funding support to SMEs, I believe it never went as far as the industry had hoped. I put this down to the members of such organisations having too much of a ‘PLC mindset’ — in other words, their backgrounds were with the large housebuilders and there was not enough understanding of the motivations of, and the challenges facing SME housebuilders. If we could encourage more funders to provide better support for SMEs throughout the UK, this would go a long way to help achieving housing targets, delivering quality housing of all tenures and supporting local trades. 

On the plus side, we do have a lot more lenders to choose from in Scotland than in the past. However, several development finance providers don’t yet offer full support across the whole of Scotland, and concentrate on Edinburgh, Glasgow, Perth, and Dundee. This puts pressure on SMEs outside of these locations, but does create the opportunity for a lender to step in and support the whole of Scotland. 

In addition, I find that there are lenders who come from a bridging background and lack the relevant ground-up experience to offer the customer the relevant support throughout the project. Ground-up development can be extremely challenging and is not the same as light refurbishment projects. Both introducers and SMEs alike should carry out their due diligence on the lender to ensure they are working with a funder who is able to support them throughout the project. 

From the client’s perspective, managing cashflow is paramount. Every project is funded in arrears, but not many clients appreciate how much money they need. For example, if your first drawdown is £100,000, the time it can take from the funder’s monitoring surveyor to inspect the works, provide a report, the funder querying any points, to money being released, can be up to one to two weeks — the developer would then need approximately £150,000 in working capital. I feel this is a point that is never fully explained, especially with first-time developers, and is a common problem when speaking to developers. 

Making it work

While I’ve outlined the challenges in the Scottish marketplace, it can be made to work, with the right support in place. I’m passionate about supporting developers throughout the process, from land acquisition all the way to exit finance, off-plan sales to cash management.

I’m strongly of the view that for Scotland to succeed in meeting its housebuilding targets, the market needs to support developers to grow from building one house to four houses to 20. SME developers building 20-home schemes across the country will go a long way to dealing with housing crisis. That’s what we’re doing at SFC Scotland, and we’re playing our part in getting Scotland building.