Small housing developers in Scotland: report

Annex C

We asked three open (free text) questions about action that could be taken to address or overcome the obstacles reported in Chapter 3 above and in turn increase output. Firstly, we called for ideas on what action respondents thought the Scottish Government could take to address the obstacles, secondly we asked respondents to set out anything they thought small and medium sized house builders could do individually or as a group to overcome barriers and thirdly we asked for suggestions on any solutions or types of support that could assist them to address the obstacles. We received in total 174 comments from 66 respondents (76, 47 and 51 responses respectively).

More than half the comments reiterated the problems, as these reflected the obstacles reported in Chapter 3, we have not duplicated that analysis here.

The majority of actions were addressed to central and local government and included direct action and, for central government, action to influence others including local government, private sector finance organisations and utility providers. The majority of these suggestions were solutions for financial obstacles, but they also tended towards difficulties with infrastructure (s75s) issues usually focussed on financial consequences on viability. These are reported below under the headings Central Government action, and local government action. Suggestions to address planning issues, although they related to both central and local government are reported separately as are some specific suggestions for utilities and those concerning the lack of skills. There is a further section on how the industry could help itself in general.

We are aware that some of the suggestions are unlikely to be feasible, however, as we asked for the suggestions it is incumbent on us to report what has been expressed. As this is qualitative data we have not reported how many or what proportion of respondents made each suggestion, rather each suggestion stands on its own merit (or otherwise).

Direct government action

Respondents suggested that the government could directly fund some aspects of the work of SMEs in the building trade. One suggestion was targeted grant funding for set up/up-front costs which impact on viability for small developers. This would include planning and infrastructure costs and road bonds. Another suggestion was that the government could provide direct financial input by subsidising workers' wages. And another was a call for a government fund to encourage the building of modular, 'ecosmart' homes.

There was also a suggestion that grants to support development could follow the agricultural diversification grants model, this was a general suggestion with no targeted or specific purpose suggested for the grants.

One respondent said

" Grant funding or innovative loan funding to assist with higher upfront costs would greatly assist".

Less direct funding but still involving the use of public funds, respondents suggested the government could become involved in lending and acting as security.

One idea was for the government to set up a central lending fund for developers as an alternative to borrowing from banks. The loans government could provide were variously described as "user friendly" or "soft loans". Another phrase used was " assisted development finance", again, specifically for those for whom statutory requirements impact on viability for developments.

A more elaborate suggestion was to create a Builders Finance Fund (like the current UK fund ^[12] ) and use it to introduce affordable housing delivery contracts with regular monthly payments giving certainty about funding for affordable homes for SMEs.

There was high praise for the Scottish Government's Charitable Bond Investment Programme ^[13] (at the time of writing the 2016/17 scheme was set at £25 million) but respondents felt it could be extended in size and scope.

In a similar vein respondents suggested that the government could go into partnerships with small developers specifically mentioned was to help SMEs develop the more awkward brownfield sites and other regeneration type building.

Help to Buy was acknowledged as a good way to help support buyers to get finance and there were calls for this to be extended but also for the existing schemes to be better advertised. One respondent said

" There needs to be a marketing campaign to explain Help to Buy and how the monthly payments for a mortgage through that scheme are very competitive when compared against private / local authority rentals. If it is as cheap to buy with the support of help to buy, why are more people not taking up that option? Something is being missed".

A related suggestion was that the government could underwrite infrastructure development for small developers this was most especially mooted in terms of the issue of SMEs struggling to find funds to provide Road Bonds.

A further role suggested for the government to help overcome the financial obstacles the respondents face was that of a scheme where the government could become involved with backing for finance, acting as a guarantor for loans for small developers building private homes, was one suggestion, others who may have come across a similar UK government initiative put it this way: "(the Scottish Government) ….could utilise their guarantee powers to support SMEs".

On suggestions was about government directly funding infrastructure, for example, setting up a fund for education asset delivery. A related idea was for the government to organise (and possibly fund or organise funds for ) a national infrastructure system. This relates to the problem discussed in Chapter 4 that there is "no policy mechanism for infrastructure delivery".

Government influencing private sector funders

Respondents suggested the government could " put pressure" on banks to provide finance, or to develop and enforce some particular lending criteria for SMEs in the building trade. Respondents also made comments concerning banks not accepting CML (Council of mortgage lenders) certificates to facilitate lending on conversions and their solution was for the government to negotiate with private sector funders.

Local Government

Some of the suggestions for action were that the Scottish Government could influence local authority's ways of working with SME builders, others were directed at local authorities themselves, some at both.

There were, in particular, calls for the government to influence local authorities concerning planning obligations (variously referred to by respondents as 'section 75s', 'planning gain'). These were seen as a burden and were thought to have a severe impact in some cases on financial viability. One respondent said:

"(the government could) ensure that Local Authorities understand development viability and have a proportionate view on planning applications as the costs for a small application is disproportionate and can be prohibitive".

Others went further and suggested that these "burdens" were removed or that there should be no requirements for small developments, or affordable housing developments. Simply put by one respondent

"…reduce contribution/ be more flexible on infrastructure and affordable housing for smaller developers"

Possibly more pragmatic, was a suggestion was that to ease the difficulties in this area local authorities should have dialogue with developers at an early stage. They wanted this dialogue to be open and include a positive assumption that S75s would be created to be both deliverable and financially viable for the developer.

Suggestions also centred specifically on affordable housing requirements, one respondent said

"We need to look at the current affordable housing requirements and revise the threshold to 25 units or more, at the moment the fact that this has been reduced to 11 units or more is totally counter-productive. For instance; in order to counter the current Affordable housing requirements it would appear that the value of the non-affordable portion of the development would have to increase to support the affordable portion in essence driving the cost of houses up not down, secondly; a development of High value properties consisting of less houses in more affluent areas more attractive as a smaller development can generate the same return with less restrictive Planning requirements than would be the case if we were building larger developments in less affluent areas. Ironically building larger developments in less affluent areas would be our preference as developers if such a thing were still viable and we are sure this is what the Government would also prefer".

Commuted payments also came up, specifically respondents suggested that the government should work with local authorities to enable them to be deferred until project completion when the developer will have recouped the build and land cost. A related suggestion was that other upfront costs to local authorities should be deferred. These were justified by respondents saying that increased homes in an area would mean increased council tax payment for the local authorities.

Respondents also suggested that if local authorities were able to increase council tax they would be better able to fund basic and fundamental operations such as education and other infrastructure.

Control of local authority stock was an issue respondents addressed, specifically they suggested developing a Local Community Housing investment model, which would give control of house stock back to the people who live in an area, they thought this would encourage investment in quality.

An idea mooted by respondents was also that measures could be put in place to ensure a wider requisition of Council owned land , followed by funding for communities to be supported in building their own affordable home projects.

A Dutch model was mentioned as an idea for local authorities to help supply less costly land and to increase local authority resources; that is to buy agricultural land and sell it on to developers with planning permissions for only a 10% increase in the cost.

One respondent put it as follows:
"Provide small developers with support on Road Bonds. The level LA's require means that developers are, in principle, funding the cost of roads and sewers twice in the cash flow until the roads get adopted. This impacts available funding to developers which limits number of opportunities developers to look at. {Small developer} work in the outlying parts of the Scottish Borders where rate of sales are low (say 10 units a year) so infrastructure cost are tied up for longer periods (including Road Bonds) therefore limiting expansion".

One of the main obstacles is that local authorities and housing associations are unable to provide funding in line with the current benchmark figures both grant and rental levels indicated in the current SG guidelines. The usual reason being that rental levels indicated by SG cannot be achieved. When carrying out initial project assessments developers use the current SG figures to assess viability. If Councils/ Associations were to apply the grant and rental levels as suggested by SG many more projects would be viable to small developers.

Planning

As explained above many of the suggestions related to planning are directed at both central and local government, however as they are specific to the planning system they are reported separately here.

One suggestion was for central government to have more of a co-ordination role in planning. Similar to the suggestion about a national role for infrastructure respondents called for:

" A more co-ordinated and tailored approach to development from the government would make things easier"

A theme in the planning solutions was action to address the particular issues faced in remote rural areas. These suggestions were not detailed, for example, respondents simply asked for building in these areas to be " approached differently by planners" or " simplified". One respondents did expand on the issues suggesting that the difficulty comes from difference in context including that there is no mains gas, for example, which makes it extra difficult to comply with legislation for energy efficiency and carbon reduction.

A similar ask was for there to be a more relaxed approach from planning departments with regards to small developments.

Another theme was a focus on attitudes. Respondents perceived that as opposed to objective planning decisions that personal preferences influenced decisions and they wanted this to stop. They also asked for a change of mind-set, noting a perception that:

" The starting point for planners is "how can we resist this" rather than " how can we support this".

And asking for:

"a complete change of culture in the Local Authority"

"No more "can't doers" … recruit some "can doers".

"..pro-development not anti-development"

They differentiated between the top level rhetoric which they thought was good and the actual behaviour of those carrying out the work and dealing with developers. Suggesting strong leadership was necessary and:

" ..a willingness to address the real lack of drive and focus at a corporate level within local authorities in so far as economic development is concerned"

Also in this vein respondents perceived that planners were "at odds with the remit of their colleagues in Housing Departments"

Noting the planning reform agenda already underway in Scottish Government respondents hoped that planning processes will "help streamline some processes". Respondents asked for "simplification" more "efficient" processes, fewer "hold ups", "shortened planning and statutory consent time lines", "reduced bureaucracy".

And further that there was a need to introduce some certainty into the process most especially for timings. Respondents wanted certainty surrounding shortened planning and statutory consent timelines. As one respondent put it:

"We require early certainty over the outcome of planning applications, as the abortive costs can be significant".

Finally respondents wanted planning to "embrace innovation and creativity". This was to address a perceived behaviour in planning departments of " hiding under convention and precedent". Asks that came under this group were for more "relaxed attitudes to planning", with an "ease of restrictions", "flexibility" and "openness".

Utility providers

As with planning issues some suggestions for utilities were directed at government but they are discussed here to distinguish them from actions on infrastructure and planning.

Unfortunately one utility provider was singled out as a particular obstacle to building for our respondents that being Scottish Water, this prompted a call for action directed specifically at this utility as respondents called for a "national review of Scottish Water".

On the other hand respondents also identified a need for developers to improve their understanding of the issues that utility providers face. They thought this could be achieved through more open dialogue leading to a co-operative way forward with each understanding the others difficulties. Also along these lines and showing some understanding for the issues utilities face respondents called for government to better fund the utilities.

Other suggestions were not so collaborative in nature and called for the government to "put pressure" on utility providers to improve their speed and enhance their level of service. There were calls for statutory time limits to be imposed and "set connection charges at a fair level".

In a similar vein to suggestions about planning and infrastructure a call for central government to co-ordinate these services and their delivery.

Again echoing suggestions for addressing the other obstacles respondents wanted transparency about charges and timescales. Reflecting the theme of a need for certainty

Lack of skills

A small number of suggestions were addressed to the issue of a lack of skills.

One idea was to offer incentives for old employees to come back into the business. This was not to simply swell the numbers but also for skills to be passed on to new recruits.

Suggestions in this category also centred on attracting young people into the business. Promoting the industry to young people using social media and making the industry attractive to young people in the same way.

Suggestions for government action included funding for Skills Development Scotland or greater incentives for the industry to bring young people into the business and giving incentives for training.

Actions for SMEs

Respondents had ideas about how they themselves could undertake action to address obstacles.

Firstly, there was an acknowledgment that individual small developers would find it difficult to influence the issues they face and also a fear that it could be counterproductive and make matters worse. For example one respondent said;

" For a developer to take a Local Authority or Utility company employee to task would be suicidal as they hold the key to the progress of a development"

As such some sort of collective action was called for and there were several examples and suggestions of how this could be done.

Firstly, the work Homes for Scotland does as a champion for the industry was highly praised and respondents called for more of the same.

Secondly, there was an example of a putting together a HUB with local authority and other key stakeholders ( TECs, Flood Team ; Planning ; Scottish Water and Scottish Enterprise) at the development design stage and a suggestion that this could ease the following stages

Similarly respondents talked of grouping together and having frank discussions with individual stakeholders about the problems they are facing and openly discussing the frustrations and costs they faced and how they could be addressed by understanding and a change of attitude.

Other suggestions included getting together a forum of developers, act as a collective voice to strengthen their voice, to " fight" their corner to ensure their voice was heard and to collectively challenge poor performance in the public sector and utilities.

A more pragmatic suggestion for collective action was to share and trade land banks. And further to spread the cost of infrastructure delivery

Specifically to get finance, to inform each other about difficulties and how they overcame them and to tell their story

"We must sit together and build up the positive case of our contribution as many small parts of a bigger industry. We employ locally. We buy materials locally. We support local events and clubs. We have strong local identity and understand the communities in which we operate. We are not here today and gone tomorrow and have a need to have strong customer relations as they are our references to the potential clients".

Respondents also wanted in some way for improvements to come from the industry themselves for example improved community consultations and better business plans were thought to be a way to address some obstacles. Also to stop seeing housing as simply profit rather as a public good and an investment in society.

One specific call was for developers to " take more seriously" and " investigate" modular building options, exploring their speedier and more eco-friendly opportunities.