Small housing developers in Scotland: report

3. Obstacles

Key points

Small developers expected to face delays, frustrations, financial loss, uncertainty, additional work and viability issues whilst trying to deliver homes over the following five years

Almost all respondents experienced financial obstacles to building over the previous three years (including a lack of finance, the cost of finance or the lending criteria). Fewer respondents expected to face these in the following five years. Nevertheless it was still one of the obstacles most expected to face

The majority of respondents experienced difficulties with the planning system (including a lack of certainty, poor performance and negative attitudes). As a similar number expected to experience these issues in the future there is no detectable confidence that they will improve

Difficulties with infrastructure (S75s) were the third most cited obstacle experienced by respondents. This is expected to become a major issue for our respondents in the future as many more expected to face these issues in the future than had in the past

Another significant difficulty was delays in delivery of utilities. Similar to infrastructure issues more respondents expected to experience these issues in the following five years than had over the previous three years

Smaller numbers of respondents also expressed difficulties with supply of land and market demand and even fewer expected these to be an issue in the future

In light of anecdotal reports that the building trade in Scotland has been hampered by a lack of skills, a surprising finding was that very few respondents had experienced a lack of skills as an obstacle to their building over the previous three years. Many more, however, did expect to face a lack of skills in the future

We found a few differences between obstacles experienced and expected between different groups of respondents

The most significant difference by size was that respondents from the medium sized group did not expect finance to be a major issue in the future and so we tentatively suggest that those building 30 or more homes per year had confidence in their ability to access finance in the near future

Respondents in the urban group were more likely to have experienced land supply and market demand issues than the rural, semi-rural and the group as a whole, but they had similar expectations that the future would bring financial, infrastructure and planning obstacles

Introduction

This chapter sets out the answers to the following two questions:

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

We asked respondents to tell us the top three obstacles to building they have experienced over the last three years, then to mention any others, further to predict the top three obstacles they expect to face in the following five years.

Please note different numbers of respondents answered each of the three obstacles questions as follows:

65 - top three obstacles over previous three years

59 - any other obstacles over previous three years

64 - top three obstacles expected in the next five years

Using the findings the responses have been crudely divided into five categories: financial obstacles to development, difficulties with the planning system, infrastructure (S75) issues, delay in the provision of utilities and an 'other' category which includes; land availability, market demand and skills gaps.

Please note the financial and infrastructure issues are broken down in to sub-categories (see Table 3.1), as such where only the overall category is noted, the numbers that cited a particular obstacle can be higher than the base number (the number that answered that question) because respondents were able to cite more than one obstacle in that group. For example, in Table 3.1, 60 financial issues were cited under any other issues by a base of only 59 respondents, this simply means that some respondents recorded more than one financial obstacle.

Once again please note the caveat in Annex A explaining the small numbers of respondents when they are broken down into groups.

Obstacles as experienced by all respondents

Financial obstacles - All respondents

Table 3.1 shows that the group of obstacles cited most often by the 65 respondents who told us about their top three obstacles over the previous three years was financial issues with 63 citations. Twenty-six (of the 63 citations) were for a lack of development finance, 16 for a problem with the lending criteria for development finance, for 13 the issue was a lack of mortgage availability for customers and for eight the cost of development finance was the problem.

There were 60 citations of finance issues from the 59 respondents that told us about any other obstacles they had faced in the previous three years. The mix of finance issues changed here with 22 (of the 60 citations) finding customers mortgage finance as the issue, 15 a lack of development finance, 12 the lending criteria and 11 the cost of finance.

The 64 respondents that told us the top three obstacles they expected to face in the following five years only cited finance issues 48 times. This suggests that although finance issues are still anticipated to be prevalent over the following five years not so many respondents expect to face them.

Planning obstacles - All respondents

Also in Table 3.1 the second most prevalent obstacle (cited in the top three issues faced in the previous three years) was planning issues which received 39 citations from the 65 respondents that answered the question. Issues categorised under this heading included that they were unable to obtain consent, that they experienced bureaucracy and delays and inconsistency. These issues caused frustration, a lack of certainty, viability problems, additional work and financial loss for the respondents.

Planning issues also came second in the list of any other issues, with 35 citations from the 59 respondents.

The 64 respondents to the question about future obstacles cited planning issues 37 times, this suggests that respondents do not expect much improvement in planning issues for the future.

Table 3.1: Obstacles to building in the previous three years and expectations for the following five years

Obstacles		Last three years				Next five years
		Top three Base 65*		Any others Base 59*		Top three Base 64*
Lack of development finance	Financial Obstacles	26	63	15	60**	19	48
Lending criteria for development finance		16		12		0
Lack of mortgage finance for customers		13		22		15
Cost of development finance		8		11		14
Infrastructure (S75) negotiations (timing)	Infrastructure Obstacles	11	28	11	35	13	48
Infrastructure (S75) blockages (delivery)		9		12		13
Infrastructure (S75) blockages (costs or funding)		8		12		22
Planning/Local Authority obstacles (contributions too high, unable to obtain consent, delays, planning gains, inconsistency and attitudes)		39		35		37
Utilities (delays in provision of water, gas, electricity, broadband)		24		29		33
Land (unable to buy or obtain an option on land)		8		9		15
Market demand (for your type of work in your area low)		7		8		0
Lack of skills		5		5		21
Already busy (no desire to build more homes)		0		1		0
Materials (shortage)		0		4		0
Others (smaller developers disproportionate costs, political turmoil, road bonds)		6		3		4

* Totals will not match bases as respondents were able to respond in more than one category

Infrastructure (S75) obstacles - All respondents

The next (third) most prevalent obstacle respondents mentioned (in the top three issues over the previous three years) was related to infrastructure or S75 issues (cited by 28 of 65 that answered the question) see Table 3.1. The main issues noted were timing of negotiations on S75s (11 citations) and blockages in delivery and costs (9 citations). All the issues impacted on the viability of developments for small developers in our survey, and like planning issues delays caused additional work, financial loss and a lack of certainty.

The 59 respondents that answered the question about any other obstacles over the previous three years cited 35 infrastructure issues, evenly spread across the costs, delivery and timings.

For the future the 65 respondents that answered the question on the top three obstacles cited infrastructure (S75) issues 48 times (up from 28 in the past). This suggests that some developers are feeling pessimistic about these issues. In particular with costs and funding of infrastructure (viability) as 22 of the 65 mentioned this specifically.

Anticipating respondents would cite infrastructure or S75 issues we also asked them to give us more detail on these issues, the results are set out in Table 3.2.

Table 3.2: Infrastructure (S75) issues
Base 21

Policy failure, no delivery mechanism	1
Difficulties and delays with agreements/consents/sign off/local authorities/bureaucracy/technical approval and providers	13
Lack of public sector finance	1
Delays/difficulties utilities	5
Rural costs too high/costs unrealistic/unviable	5
Road bond issues/consents slow	2
Land supply	1

Table 3.2 shows that the majority of respondents with infrastructure issues experienced costly and frustrating difficulties and delays with agreements and consents, they suffered from bureaucratic delays and technical delays. Some direct quotes illustrate this problem clearly.

One respondent said:

"Delays in getting technical approval and delays in getting infrastructure providers commissioned and to complete the works in the agreed timelines"

Another pointed out the uncertainty this produces:

"Very long legal processes with Council (leading to) uncertainty".

Another explained the further impacts of such delays and the problem of bureaucracy:

" The delivery of section 75 agreements is too time consuming and onerous. ….. All too often the onus is on the developer to come up with the wording, only for this to be knocked back by the local authorities solicitors wasting time and money."

S75s impact on viability is described by this respondent:

"S75s often place an undue burden on viability of development. Unrealistic financial conditions often means developments are delayed and again this impacts on the opportunity to provide much needed affordable homes".

Utility delays - All

The other key obstacle from the previous three years was delays in the delivery of utilities which received 24 citations (from 65 respondents) as a top three issue and a further 29 citations (from 59) under any other issues.

As to the future, our respondents (64) cited delays in utilities 33 times meaning more developers expected to experience this in the future than did in the past.

We have illustrated some details respondents experienced on the delays below. Unfortunately Scottish Water was singled out for particular criticism. One responded said:

"Scottish water's inability to provide connections within budget or reasonable time frames"

Another elaborated and named further organisations:

"Scottish Water, BT and Scottish Hydro are a nightmare to deal with. Long delays, confusion between internal staff, too many third party organisations involved. Lack of coherent information. Information changes from person to person. Too much red tape".

Lack of Skills - All

Anecdotally (and regularly in RICs UK Construction Market survey ^[8] ) a lack of skills has been identified as one of the biggest barriers to building new homes. In the first of our two questions on obstacles, of the 65 that specified their top three only 5 cited lack of skills, likewise from the 59 that told us about any other obstacles only 5 cited lack of skills. The following five years, however, is a different issue with 21 of the 65 that answered this question expecting to experience this problem.

This finding suggests a number of interpretations in light of the strength of the perceived lack of skills reported anecdotally and at the UK level. Firstly, it could mean that whilst this has not yet become a major barrier, the building industry is horizon scanning and sees the issue as a 'ticking time bomb'. Secondly, it could mean that even if this problem is not experienced by many the impact of it is disproportional. A third interpretation is to align this finding with the findings in Chapter 2 and suggest that as developers are expecting to build more they are not confident that they will be able to recruit the extra workers they might need.

In any case the lack of skills is perceived as a major barrier going forward for small developers.

In light of the relevance of this issue we asked respondents who cited a lack of skills as an obstacle which skills in particular they had experienced as lacking and which they expected to experience as lacking. Over the previous three years respondents mentioned a lack of skilled bricklayers, joiners, painters and decorators, plumbers and electricians. The results for the future are set out in Table 3.3.

Table 3.3: Skills Expected To Be Lacking In The Future

Skills	No of times cited
Professionals (Architects/Engineers/Surveyors)	3
Site/Project Mangers	2
Machine Operators	1
Ground-workers	2
Roofers	1
Rough-casters/Renders	1
All Trades	9
Brickies	1
Joiners	4
Painters	1
Plumbers	1
Construction/Building	4
Labourers	1
Electrician	1
Base 19 Respondents	32

For the future there was a wider selection of skills mentioned. As well as the skills mentioned for the past, respondents mentioned professionals of all types, project managers, machine operators and many (9 of 19) said they expected a lack of skills in all trades to manifest.

Obstacles - Small and medium

A full analysis of the detailed findings setting out the numbers of respondents in each groups experiencing the obstacles and a breakdown of the obstacles in some cases is in Annex B, below is a summary.

As Table 3.4 shows for both the group we have defined as small sized and the group we have defined as medium sized the obstacle experienced over the previous three years by most was financial issues. This reflects the experience of the respondents as a whole. The second most experienced obstacle was planning for the small group as it was overall, for the medium group this was the third most experienced, utility delays was their second most cited issue. Infrastructure was the third highest issue for the small group again reflecting the respondents as a whole.

Echoing the respondents as a whole, in the following five years the obstacle most respondents in the small group expected to experience was financial issues followed by infrastructure. For the medium sized group the top issues were jointly infrastructure problems and utility delays (the respondents as a whole cited financial and infrastructure issues). For both groups planning was third. It's worth noting that financial issues moved down to fourth place for the medium group, leading us to tentatively suggest that there is a confidence in those building more than 30 homes a year surrounding their ability to access finance.

A lack of skills did not feature strongly as an issue for either groups in the past but more respondents in both groups expected to come across this issue in the following five years again mirroring the respondents as a whole.

Table 3.4: Obstacles ranked by those experienced by the most respondents - Small and medium sized respondents

Previous three years		Following five years
Small sized group	Medium sized group	Small sized group	Medium sized group
1 st Financial	1 st Financial	1 st Financial	Joint 1 st Infrastructure
2 nd Planning	2 nd Utilities	2 nd Infrastructure	Joint 1 st Utilities
3 rd Infrastructure	3 rd Planning	3 rd Planning	3 rd Planning
4 th Utilities	4 th Infrastructure	4 th Utilities	4 th Financial
5 th Land	Joint 5 th Land	5 th Lack of skills	5 th Lack of skills
6 th Market demand	Joint 5 th Market demand	Joint 6 th Market demand	Joint 6 th Market demand
7 th Lack of skills	Joint 5 th Lack of skills	Joint 6 th Land	Joint 6 th Land

Table 3.5 sets out whether fewer or more respondents expected particular obstacles to apply to them in the future (than had in the past).

More respondents in the small group expect to experience problems with infrastructure, delays with utilities and a lack of skills in the future and fewer expect to experience financial difficulties (although this is still the number one obstacle) exactly reflecting the group as a whole. For the medium sized group more expect to experience planning issues, infrastructure problems, utility delays and a lack of skills and fewer expect to experience financial difficulties. The only difference in this group to the respondents as a whole was an increase in numbers who expect to experience planning problems.

Table 3.5: Obstacles fewer or more respondents expecting to encounter - Small and Medium sized respondents

Obstacle	Small sized group	Medium sized group
Financial	Fewer	Fewer
Planning	No change	More
Infrastructure	More	More
Utilities	More	More
Lack of skills	More	More

Obstacles - Rural, semi-rural, urban

Table 3.6 shows that the obstacles that our respondents experienced in the previous three years varied by geographical situation.

In the previous three years the obstacle cited by the most respondents in all three groups was financial issues, reflecting the finding for all respondents. The obstacle experienced second most frequently for the rural group was jointly infrastructure and utility problems, for the semi-rural group it was planning and for the urban group it was land. Thirdly, came infrastructure for the semi-rural group and market demand for the urban group.

Expectations for the following five years also differ. In the rural group most expected to face financial issues and infrastructure issues. The urban group expected mostly financial issues and the semi-rural group cited infrastructure issues the most times, although their second placed issue was financial. For the urban group in second place there were three issues expected by the same numbers; infrastructure, planning and land supply. In third place for the rural group it was utilities and for the semi-rural group it was jointly utilities and lack of skills.

Table 3.6: Obstacles ranked by those experienced by the most respondents - Rural, semi-rural, urban respondents

Previous three years			Following five years
Rural	Semi-rural	Urban	Rural	Semi-rural	Urban
1 st Financial	1 st Financial	1 st Financial	1 st Financial and Infrastructure	1 st Infrastructure	1 st Financial
2 nd Infrastructure	2 nd Planning	2 nd Land		2 nd Financial	2 nd Infrastructure and Planning and Land
2 nd Utilities	3 rd Infrastructure	3 rd Market demand	3 rd Utilities	3 rd Utilities and Lack of skills
4 th Planning	4 th Utilities	4 th Planning	4 th Planning
5 th Land and Market demand	5 th Lack of skills	5 th Utilities	5 th Lack of skills	5 th Planning	5 th Utilities and Lack of skills
	N/A	N/A	6 th Land	6 th Land
7 th Lack of skills	N/A	N/A	N/A	N/A	7 th Market demand

Table 3.7 sets out for each of the major obstacles whether fewer or more respondents from the different groups expect it to impact on them in the future than it had in the past. In each of the groups (echoing the group as a whole) fewer respondents expected financial obstacles to be of issue. In the rural and urban groups all the remaining key obstacles were expected to be of issue by more respondents, this differs from the group as a whole only in the issue of planning where no change is expected overall. In the semi-rural group fewer expect planning issues, there is no change in the numbers expecting utility delays in contrast to an increased number overall for this obstacle. Similar to the other groups the semi-rural group expected infrastructure and lack of skills to present problems.

Table 3.7: Key obstacles fewer or more respondents expecting to encounter - Rural, semi-rural and urban respondents

Obstacle	Rural	Semi-rural	Urban
Financial	Fewer	Fewer	Fewer
Planning	More	Fewer	More
Infrastructure	More	More	More
Utilities	More	No change	More
Lack of skills	More	More	More

The next chapter sets out suggested solutions for these obstacles.