Small housing developers in Scotland: report

Executive Summary

The Scottish Government is striving to find ways to help and encourage small housing developers in Scotland to contribute to its objective of increasing new housing supply. In summer 2016 we undertook an electronic survey to explore the obstacles to building these SMEs (small and medium sized enterprises) had experienced in the previous three years and that they expected to experience in the following five years.

Sixty-six SMEs responded. The findings do not necessarily represent all experiences and expectations of all small developers in Scotland but each respondent's experiences and expectations are valid insights into SMEs in the building industry in Scotland.

The 66 respondents were weighted towards those who deliver mainly in rural and semi-rural areas, those that produce fewer than 30 homes per year and those that had registered for at least one Help to Buy scheme.

Please see Annex A for further information on methods, sample sizes and time frames.

Output

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

Respondents were optimistic for the future. More developers expected to deliver more homes of all sorts and all prices in the following five years than they did in the previous three years (even accounting for the longer time period).

More respondents expected to deliver new builds and slightly more expected to do other types of business, for example, conversions. More respondents expected to sell homes in each of the price brackets (especially the £230,000 to £250,000) more expected to be building private and social housing. The optimism was noticeable across the size grouping and urban/rural groupings but was slightly more conspicuous in the small and rural groupings.

That said the respondents to this survey are facing a multitude of barriers to building.

Obstacles

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

The findings suggest that developers' top obstacle over the previous three years was financial, but that fewer expected to experience this as a problem in the future (although it was still the issue expected by the highest number of our respondents in the future).

Planning and infrastructure issues also loomed large as experienced in the past and more of our respondents expected infrastructure issues to act as a barrier in the future. Roughly the same amount expected planning issues. Utility delays also featured heavily in the past and the future.

There is a very clear expectation that more respondents will be thwarted by a lack of skills in the following five years.

There were some differences in obstacles, both experienced and expected, by size of respondent and by where they carried out most of their business.

For all the groups separately the obstacle experience by most over the previous three years was financial, and for the small, rural and urban groups this was the obstacle that the highest number of them expected to face in the future. For the medium sized and the semi-rural groups the highest numbers expected to face infrastructure and utilities obstacles. Other differences by groupings included more of the medium sized group and the rural and urban groups expecting to experience planning issues in the future than had in the past; the semi-rural group expected fewer.

In sum whilst trying to deliver homes over the following five years small developers expect to face difficulties caused by finance issues, delays, frustrations, financial loss, uncertainty, additional work and viability issues caused by problems with infrastructure (S75s), the planning system and utility delivery.

Solutions

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

Respondents called for direct government action on financial issues with grants, assisted loans or the government acting as guarantor for loans. They also suggested working with banks to develop solutions to issues with a lack of finance, the cost of it and the lending criteria.

Further respondents called for central government to use their influence on local authorities and utility companies to pave the way for more straightforward planning and delivery of utilities. Taking this a bit further respondents suggested central co-ordination of, in particular, infrastructure and there was a call for a national infrastructure scheme. Scottish Water was singled out as a particular issue and respondents called for a review of this organisation.

Aware of the on-going planning review ^[1] , respondents expressed a hope that changes would make the process quicker, easier and simpler. A further call for planning directed at the departments themselves was that the perceived attitude of ' anti-development' would be turned around and that the default should be 'pro-development'.

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

Self-analysis was also detectable with suggestions that the industry could get better at consulting the communities, writing business plans and seeing their work as a public good as well as a business.

Help to Buy

• What is the level and nature of the knowledge of small developers about the Help to Buy shared equity scheme (and other SG initiatives centred on building)?
• For HTB registered developers, what was the motivation for registration where no or few sales were made under the scheme?
• What is developers' experience of:
  • the scheme
  • the registration process and
  • understanding the processes for managing and approving applications?
• What elements of the small developer support provided could change to enable greater participation through (a) registrations and (b) sales under the scheme?

The overall brand of Help to Buy was well known and well used by our respondents. In general those who used it had not only had no complaints about the system and its processes but praised it for its simplicity and efficiency. The process of the schemes then cannot be said to be a barrier for small developers to build under it. On the other hand there were barriers (perceived or otherwise) to delivering under the scheme.

One barrier was also the most prevalent obstacle found to building in general and that was difficulty with financing development.

Three barriers related to the scheme. One was thresholds in areas where average house prices are higher than the rest of the country and respondents thought thresholds reflect local circumstances.

Another was a perception that the percentage funded by government was too low and respondents called for an increase.

Finally, respondents would like to see more marketing of the scheme including targeted marketing at those on housing lists.

Conclusion

Small developers in Scotland were optimistic about the numbers of homes they expected to deliver in the five years following this survey. Nevertheless they still expected to face a myriad of obstacles and barriers, most notably; financial barriers, problems with S75s, difficulties with the planning system and delays in delivery of utilities. They expressed frustration, a need for additional work, loss of income and viability problems stemming from the obstacles.

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

Help to Buy is well known and well used with the only barriers being price restrictions and difficulties with finance in general (as opposed to specific to Help to Buy).