Challenges facing small housing developers: survey

Executive Summary

The Scottish Government is working to find ways to help and encourage small housing developers in Scotland to increase new housing supply. In summer 2019, the Scottish Government conducted an online survey of small and medium-sized enterprise (SME) developers to find out what obstacles they had experienced in the previous three years, and expected to experience in the following five years. This survey followed on from a previous survey of SME developers on similar themes conducted in the summer of 2016.

Fifty-seven SME developers responded. The 57 respondents were predominantly those that deliver mainly in rural and semi-rural areas and those that had registered for at least one Help to Buy scheme.

The findings did not necessarily represent the experiences and expectations of all small developers in Scotland, but each respondent provided valid insights into building industry SMEs.

The findings can be grouped into five main categories: Output, Obstacles, Solutions, Government Initiatives, and Staffing and Sub-Contractors. These are summarised below:

Output

• What has the output of small developers been in the last three years and what do they expect it to be during the next five years?

The majority of respondents focused primarily or exclusively on new build work, and more respondents expected to build new homes during the next five years than did during the previous three years. However, this is with the caveat that the timeframes are different.

More respondents expected to convert buildings into homes over the next five years than did during the previous three years. Also, more respondents expected to bring empty homes back into use over the next five years than did during the previous three years.

Fewer respondents built for the social sector than for the private sector, but more respondents expected to build for the social sector over the next five years than did during the past three years.

More respondents expected to sell homes across the full range of price brackets in the following five years than had during the previous three years.

Obstacles

• What are the current barriers to small developers building homes?
• How do small developers envisage the barriers changing (improving, getting worse) over the next five years?

The findings suggest that SME developers' biggest obstacle during the past three years was with the planning system. The majority of respondents had experienced difficulties obtaining planning consent for development during the previous three years and expected this to be the case during the next five years.

The majority of respondents had experienced difficulties with infrastructure during the past three years, including negotiating Section 75 Agreements (S75s)^[1] and meeting S75 obligations.

Fewer respondents expected to experience financial obstacles over the next five years than had experienced them during the past three years, which suggests a level of optimism among SMEs for the future.

More than one in three respondents had experienced issues related to a lack of skills during the past three years, and there was concern that this skills shortage would continue.

Solutions

• What actions or changes do small developers think are needed to improve their output?

Respondents called for direct government action on financial issues, suggesting more public funding should be made available for development. They also suggested working with banks to develop solutions to the lack of development finance, the cost of development finance, and the lending criteria.

Respondents called for central government to influence local authorities and utility companies on planning and the delivery of utilities. Some respondents went further, suggesting greater centralisation of infrastructure and planning. Scottish Water was singled out as causing particular issues and respondents called for a review of this organisation.

Respondents saw the value in engaging more openly with government and utility providers, either individually or as a group, in order to foster mutual understanding and develop relationships that could be used to overcome obstacles.

It was also recognised within some responses that the industry could address the skills shortage by training more apprentices.

Government Initiatives

• What is the level of knowledge of small developers about the Building Scotland Fund, the Help to Buy schemes, and the New Scottish Shared Equity scheme?
• What is their level of interaction with each scheme?
• How many homes have they sold under each scheme during the previous three years, and how many do they expect to sell over the next five years?

The SME developers who responded were well aware of the Help to Buy schemes. Most respondents had registered under one of the schemes, and roughly half had made sales under at least one of them. However, most had not made any sales under the Help to Buy schemes during the past three years, and most did not expect to make any sales under it during the next three years.

Levels of knowledge and engagement with the Building Scotland Fund and the New Scottish Shared Equity scheme were far more limited with most respondents having not heard of either.

Staffing and Subcontractors

• How many apprentices do developers currently employ, and do they intend to retain apprentices once they have completed their apprenticeship?
• How many people do developers currently employ, and has this increased, stayed the same or decreased during the past three years?
• What subcontractors do developers use?

Just under half of respondents currently employed apprentices. Of these, most intended to retain them once they had completed their apprenticeship.

For most respondents, their number of employees had either increased or stayed the same during the past three years. However, almost half of respondents did not currently employ any staff, and 21 of 57 respondents subcontracted out all their work.

Most respondents used a wide range of subcontractors with only one respondent reporting using no subcontractors.

Conclusion

Small housing developers in Scotland were relatively optimistic about the numbers of homes that they expected to deliver in the five years following this survey. However, they still expected to face a number of obstacles, such as: difficulties with the planning system; financial barriers; problems with infrastructure; and delays in the delivery of utilities. They also expressed frustration over additional work, loss of income and viability problems stemming from these obstacles.

Respondents made calls for financial (and other) assistance from central government, and for more co-operation between local government and utility providers. They suggested that individually and jointly they could initiate open engagement with stakeholders in their areas to foster mutual understanding of the issues each faces.

The Help to Buy Scheme (Scotland) schemes were well known amongst SME developers, but relatively few had recently made sales under it, or expected to in the foreseeable future. Awareness of and engagement with other relevant government initiatives was limited.