Small housing developers in Scotland: report

1. Introduction and Respondents

Key points

The Scottish Government undertook an electronic survey to inform policy on supporting small housing developers to contribute to increasing the number of new homes built in Scotland

We asked questions about their experience over the previous three years and expectations for the following five years, on: output, barriers to building and solutions and Help to Buy schemes

66 developers responded from 31 of the 32 local authorities in Scotland

38 respondents undertook their main business in rural areas, 17 in semi-rural areas and 11 in urban areas

52 respondents built 30 or fewer homes per year and 14 built between 31 and 500

49 respondents had registered for at least one Help to Buy scheme

Introduction

The Scottish Government's vision is that everyone in Scotland will live in affordable, quality homes that meet their needs. Working towards this vision an indicator in the National Performance Framework is to "Increase the number of new homes" ^[2] . In order to achieve this it is vital that all developers can contribute. Two issues have been identified that raise concerns for the part that small developers ^[3] can play in this objective; (i) a significant decrease in the share of the market for smaller developers since 2008 and (ii) few smaller developers building for the Help to Buy (Scotland) scheme.

This research explores small developers experiences in Scotland and in this way identifies how best we can help small developers to build more homes.

Share of business

Post 2008 smaller developers in Scotland saw their share of the market reduce. National House Building Council Monthly figures for The UK as a whole ^[4] show that the share of new registrations in 2008 for companies building 100 units or fewer was 28% and that this had reduced to 12% by 2015. Likewise the share for companies building 500 units or fewer was 45% in 2008 but reduced to 26% in 2015. Further, in this vein, the absolute number of small builders registering with NHBC has declined in this time period. From 17,068 registering 100 builds or fewer registered in 2008 to only 9,204 in 2015. ^[5]

Help to Buy

Help to Buy is a term that covers a number of UK and Scottish Government ( SG) initiatives; including shared equity support for people buying a new build home (Help to Buy (Scotland) Affordable New Build) and ring-fenced support for small builders (Help to Buy (Scotland) Small Developer scheme). Both launched in April 2016 replacing similar previous shared equity schemes.

In essence the schemes involve developers registering and then building new homes to sell to buyers who have applied for, and been accepted on, the scheme. The buyers do not pay any interest on the equity, they can buy the equity from the SG (in full or any amount above 5%) or pay the SG back when they sell the home. The amount they pay in both instances will be the same percentage as the government supplied but calculated on the value or the selling price of the home, which may, of course, have increased or decreased.

The reality of the reduced share of the market smaller developers experienced post 2008 was reflected in the figures collected for the original Help to Buy (Scotland) shared equity scheme that ran from September 2013 to March 2016. These showed that the volume builders had a share of support in line with market trends. Although around 200 small developers registered for the scheme, very few actually built and sold homes under the scheme. This was despite the government establishing separate ring-fenced support for smaller developers.

Clearly small developers are facing obstacles to building and in order to increase supply of homes across all tenures over the following five years, barriers to small developers building will need to be addressed. As such the Scottish Government undertook this survey to explore barriers to building homes in general for small developers in Scotland and uncover the reasons for their lack of participation in the shared equity schemes.

Research Questions

The research was designed to provide information to inform policy decisions on enabling small developers to build new homes. It aims to answer the following questions:

• What has small developers output been in the last three years and what do they expect it to be for the next five years?
• 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?
• What actions/changes do small developers think are needed to improve their output?
• 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 Help to Buy 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?

A note on use of language

The terms 'small (housing) developers' and ' SMEs in the building trade' are used interchangeably in this document.

Respondent Characteristics

We have broken the sample down by geographic groups and size, for two reasons. Firstly, to describe the sample in detail for context and as this breakdown gives us groups that are too small for meaningful analysis and comparison secondly, we have used fewer groups to allow us to explore whether developers of different sizes or those working in different geographic situations have different experiences (more below).

Geographic

For description we have used local authority areas and Help to Buy areas, for analysis we have used the urban, rural, semi-rural split as set out in the Randall Definition ^[6] .

We asked respondents in which local authority area they carried out the majority of their business and then any other areas in which they undertook business. The full detailed results are set out in Table A.1 in Annex A and show that survey respondents delivered in 31 of the 32 local authority areas in Scotland (Falkirk was the only area not represented).

We also grouped the respondents by the areas used in Help to Buy analysis on the Scottish Government website, and set out the results in Table 1.1. It shows the largest number of respondents (20 of 66) delivered their main business in the West of Scotland, the others are fairly evenly spread across the five remaining areas with the North-East group being the smallest at nine respondents.

Table 1.1: Respondents grouped by Help to Buy local authority area groups
Base 66

Area	Local Authority	Main business area	Other business areas
Central Scotland	Angus	12	22
	Clackmannanshire
	Dundee City
	Falkirk
	Perth and Kinross
	Stirling
Highlands and Islands	Eilean Siar	12	7
	Highland
	Orkney Islands
	Shetland Islands
North-East	Aberdeen City	9	14
	Aberdeenshire
	Moray
South-East	Edinburgh	13	35
	East Lothian
	Fife
	Midlothian
	Scottish Borders
	West Lothian
West	Argyll and Bute	20	44
	Dumfries and Galloway
	East Ayrshire
	East Dunbartonshire
	East Renfrewshire
	Glasgow City
	Inverclyde
	North Ayrshire
	North Lanarkshire
	Renfrewshire
	South Ayrshire
	South Lanarkshire
	West Dunbartonshire

Table 1.2 sets out respondents grouped by rural, semi-rural and urban area. It shows that for respondents main business the majority (38 of 66) work in rural areas. In addition 27 work in semi-rural areas with the remaining 11 in urban areas. The trend reverses between semi-rural and rural areas for the other areas in which the respondents did business as 54 (of 66) respondents did business (other than their main business) in semi-rural areas and 42 in rural areas.

Although 27 respondents were doing business in urban areas as well as the 11 for whom their main business is urban, in general, the respondents are weighted towards working in rural and semi-rural areas. This is unsurprising for two reasons. Firstly, because the majority of Scotland's land mass is rural and semi-rural and secondly and anecdotally it is thought that, in general, large developers prefer not to work in rural areas and small developers fill this gap. In reporting and discussion below we have categorised the respondents using their main business areas and as such have a group of rural respondents (38 in number), a group of semi-rural respondents (27 in number) and a group of urban respondents (11 in number).

Table 1.2: Respondents by Rural, Semi-rural and Urban categories
Base 66

Local Authority	Category	Main business area	Other business
Aberdeenshire	Rural	38	42
Angus
Argyll & Bute
Comhairle nan Eilean Siar
Dumfries and Galloway
East Ayrshire
Highland
Moray
Orkney
Perth & Kinross
Renfrewshire
Scottish Borders
Shetland Islands
South Ayrshire
Stirling
Clackmannanshire	Semi - rural	17	54
East Dunbartonshire
East Lothian
East Renfrewshire
Fife
Inverclyde
Mid-Lothian
North Ayrshire
North Lanarkshire
South Lanarkshire
West Dunbartonshire
West Lothian
Aberdeen	Urban	11	27
Dundee
Falkirk
Edinburgh
Glasgow

Size

To indicate whether relative size within the full group impacts on their experience and expectations we have grouped the respondents by the number of homes they built per year on average over the previous three years. This is a crude measurement as output can vary significantly from year to year but, at the least, gives an indication of the amount of homes respondents were delivering. Respondents output by this measure ranged from zero homes built to 300. The results are set out in Table 1.3 ^[7] .

It shows that eight respondents sold zero homes, 24 sold between one and ten and 20 sold between 11 and 30. At the other end of the scale 11 respondents sold between 31 and 100 and three sold between 101 and 500. For the analysis we have divided the respondents into two groups by size; those delivering 30 or fewer units are referred to as small (52 of 66) and those delivering over 30 (14) as medium sized.

Table 1.3: Numbers sold in three years previous to survey per year on average.
Base 66

0	Zero	Small	8	52
1-10	Very small		24
11-30	Small		20
31-100	Intermediate	Medium	11	14
101-500	Medium		3

For interest Table 1.4 sets out the numbers of respondents that did the majority of their business in rural, semi-rural and urban areas by size. Unsurprisingly it shows that the largest group of respondents (30 of 66) were both small and rural.

Table 1.4: Urban/rural by small/medium
Base 66

	Small	Medium	Total
Rural	30	8	38
Semi	13	4	17
Urban	9	2	11
Total	52	14	66

One further category we have undertaken for description is whether the respondents had registered for any Help to Buy scheme. 65 answered the question, 49 had registered and 16 had not.

The rest of the report sets out the findings.