Why Small Developers should Look Beyond the Headlines

By Steve Larkin, the Director of Development Finance at LendInvest

It’s fair to say that there have been a few negative stories about the housing market of late, particularly on the topic of house prices.

In May, for example, Nationwide’s House Price Index – one of the most frequently cited sources when it comes to the overall health of the property market – reported a 0.2% fall in prices, while the latest survey from the Royal Institution of Chartered Surveyors (RICS) is similarly gloomy about price rise prospects.

It’s easy to get caught up in this doom and gloom and convince yourself that we are in a precarious position. But look beyond some of those headlines and you’ll see that confidence, both among consumers and those in the housing industry, is actually in pretty decent shape.

Let’s start with the consumers. GfK’s consumer confidence index in May saw confidence rise by two points to the highest level in a year, while our confidence in our own personal finances jumped by four points on a month-on-month basis.

Sure, there’s realism about the state of the economy – everyone knows it could be in better shape, particularly with the huge uncertainty of Brexit on the horizon – but, equally, most people seem to be relatively happy. What’s more, Rightmove, the nation’s most popular property portal, has reported record numbers of visits for the start of this year. There’s clearly a continuing appetite to buy homes.

Then there’s the confidence of the big builders, who, despite the apparent difficulties of the housing market, are actually looking to ramp up production. Last month, Taylor Wimpey, for example, confirmed that it will be building out its land bank at a faster rate, which will mean producing more than 18,000 homes a year.

Its Chief Executive, Pete Redfern, suggested that securing land and planning permission is now easier than it has been for the last 30 years.

Taylor Wimpey isn’t alone either, with overall housebuilding levels looking promising. The trouble is that we aren’t hearing enough about the positive noises in the market.

At its annual policy conference earlier this year, the Home Builders Federation warned that the negative rhetoric around housebuilding was simply providing fuel to NIMBYs and energising anti-housebuilder campaigners, and it was spot on.

For the first time in decades, it feels like the authorities have finally grasped the size of the task at hand and begun delivering the support the industry needs. The last thing we need is for a bit of typically British pessimism to start to undermine that.

There is also a danger that the rhetoric can become self-serving too, pushing small developers to hold off on the projects they have in the pipeline, letting things drift unless they have a hard and fast completion date in mind.

It’s understandable if developers are a little reticent. Putting it bluntly, small developers have more to lose from an ill-timed or ill-judged project than the big builders, for whom it is simply less of a material concern. With the giant unknown of Brexit less than a year away, it’s difficult to blame small developers who are feeling more cautious about giving a project the green light, no matter how promising it may seem.

But, perhaps, small developers should be using the big names as a good barometer for market confidence, rather than allowing themselves to be put off developments that are ready to go, but haven’t yet begun because of a few slightly downbeat house price indices.

The Government is well aware that, if we are to hit its target of a million new homes by 2020 – and the industry is currently on course to do so – then we need these small developers to continue delivering homes.

That’s why it is actually putting its weight behind them and looking for ways to boost the lot of the small builder. In the Ministry of Housing, Communities and Local Government single departmental plan, published in May, the department states that a key element in hitting those housing targets will be by improving competition in the housing market, by “opening it up to smaller builders and those who embrace innovative and efficient methods”.

Small developers are already playing a vital role in improving the UK’s housing production. For that to continue, they need to pay less heed to negative headlines and instead focus on the underlying confidence in the market.