House building is dominated by well-funded corporates and G15 Housing Associations. Only 12% of homes built in the UK are by what loosely can be termed the independents or SMEs.
A cursory glance at the property press suggests that being big is best in the property game. Barratt announced record profits for 2019 and the majority of the nation’s other housebuilders’ balance sheets appear in rude health.
Meanwhile, amalgamations continue: Bovis Homes is eyeing a deal for Galiford Try said to be worth over £1 billion. The deeper the pockets, the bigger the success can be.
It wasn’t always like this. Back in the 1980s, four in ten homes were delivered by SMEs. A meaningful number.
Since the financial crisis, the decline in the contribution of SMEs has gathered pace. Today’s contribution is less than half what it was in 2008.
Should we be worried about this decline. My view is yes for three simple reasons. Firstly, a system dominated by a handful of larger entities means the nation’s new build housing future relies on the ability of these actors to choose when and how they will deliver. It only takes one or two to catch a cold for the system to come under pressure.
Secondly, larger entities tend to focus on operational efficiency. Every process is constantly refined, every cost scrutinized and engineered. This of course makes for good business sense. What it doesn’t offer is innovation and flair.
Without innovation, many of the challenges the industry faces, from finding new ways for unlocking supply; to meeting the demands of climate change mitigation, will not be met. Diversity is key, but there is a worrying lack of it.
Take architecture, something which should be a fundamental part of the development sector. According to RIBA, in 2016, only 6% of new homes in the UK were actually designed by architects. This loss of design creativity is a consequence of a sector dominated by the few.
Finally, the lack of diversity in the sector tells us something about the regulatory environment we as a country have created. The UK has a rules heavy system and one which is constantly tinkered with. Sometimes with the best of intentions and many times with negative unintended consequences.
Such a bureaucracy is not easy to traverse. It favors those with the benefit of significant capital and of course time. Unfortunately, neither of these advantages are ones which SMEs usually possess. Let me know what you think.
