Small and Medium-sized House Builders

[Mr Lawrence Robertson in the Chair]

I beg to move,

That this House has considered the future of small and medium-sized housebuilders.

It is a pleasure to serve under your chairmanship, Mr Robertson. I am particularly pleased that this debate has been granted, as it is on a subject that I have had an interest in for a long time. It is 20 years ago this week that I first became an elected Conservative politician. Throughout that time, housing has been central to my work. I spent 12 years on a planning committee, was the director of a housing association, led a county council, and held a strategic planning role on a regional assembly. Even during my time as an MEP, I served as the co-ordinator on the Committee on Regional Development.

Since my election as MP for Northampton South in 2017, housing has become ever more central to my work. In my maiden speech, I referred to my predecessor, Michael Morris, now Lord Naseby, who is still my friend, and to his 1974 maiden speech, which also had much content about Northampton and its housing issues. Locally, I am close to Northamptonshire Partnership Homes and its excellent and recently retired chief executive, Mike Kay. I was pleased to cut the ribbon on several of its developments.

For the vast majority of my time in Westminster, I have been a member of the Housing, Communities and Local Government Committee, as I wish it was still called. I am chairman of the all-party parliamentary group for the private rented sector and, most relevantly to this debate, I am founder and chairman of the APPG for small and medium-sized enterprises house builders, which has well over 200 industry members.

Unsurprisingly, I strongly believe that SME house builders can play an incredibly important role in addressing the dual problem of housing accessibility and affordability across the United Kingdom. Many of us recognise those problems, which are particularly acute for those aged under 40. A recent study by Lloyds bank illustrated the depth of the problem that younger people face when buying a house. In 1989, 51% of 25 to 34-year-olds owned a house—a high point—but that figure plummeted to 28% in 2019. It is not the focus of the debate, but the impact of migration on that cannot be ignored. In the last two decades, around 8 million people have been added to the population of the UK by immigration alone. That represents about four fifths of population growth. A new home needs to be built every five minutes if we are to keep up. As a political class, that is on us. Whether we approved of it or, like me, did not, does not matter. It is a fact.

No matter how much we would love things to stay the same, and no matter how much we do not want more houses in our constituency because we have persuaded ourselves that it is special, that cannot be. No one policy prescription or sector alone can remedy the alarming decline in home ownership, but all Members of Parliament should be concerned about generational disparity. From my party’s point of view, if one good thing comes out of last week’s election, it should be any complacency being struck out; a huge increase in house building must be a priority.

As a Conservative, I feel very strongly about the UK being a property-owning democracy. It worries me deeply that, for many young people, home ownership is increasingly out of reach. I do not believe that any one policy prescription can arrest the trend; home ownership is declining for a great many reasons, and meaningfully addressing those would take much longer than the time allotted for this debate. However, in my role as chairman of the APPG for SME house builders, and as a member of the Select Committee, I want to talk about how the SME house building sector can play its part in changing things for the better.

The Home Builders Federation reports that the SME house building sector delivered about 22,000 homes in 2020. Those are typically smaller developments built on trickier sites, be they awkwardly shaped and accessed ex-industrial sites, repurposed and extended buildings in towns and villages, or small, sustainable urban extensions. The SME house building sector tends to go where the volume house builders cannot. During my many years on a planning committee, I saw, just as many of us will see now, that SME developments often faced significantly reduced community objection. The cry of many is, “Brownfield first.” Whatever we may think of that policy ambition, SME house builders are delivering brownfield site housing up and down the country day in, day out. Many of the objections that people raise through the planning process relate to the scale of development proposals. “We do not want hundreds of houses here” is a refrain familiar to many of us, I am sure. All too often, people do not get the infrastructure to go with those large developments, and we can then see why opposition to development is not pure nimbyism; we need to be fair to people about that.

The SME sector of the house building industry delivers on more difficult sites, and in a way that elicits significantly less vocal objection than some of the volume house builders do. It delivered 39% of all homes built in England in the late 1980s, yet barely manages 10% of our annual housing completions 40 years later. I want to talk about why that is, and what the sector and the Government can do to arrest that decline.

The APPG has identified three significant issues facing SME house builders in the UK today. I am sure that there are many more, but addressing these three would put the industry in a much better place. The first is the cost of materials. The APPG has been working with partners on cost-of-material issues; it is clear that they have been particularly acute in this inflationary period. Of course, this is not the only sector struggling because of inflation, but SME house builders typically have smaller cash reserves than volume house builders, so they feel material costs much more keenly. There has been a de-globalisation impact too, as supply chains reaching into the far east get less reliable. That gives rise to a whole other debate on resilience, reshoring and not exporting our emissions so that we can pretend that they are lower.

Many cost pressures are a function of our wider economic challenges, but I want to hold up one example of what a business based in Northampton is doing to try to lessen the impact of material costs on SME house builders. Travis Perkins has for many years engaged with the SME house building sector, both as a member of the APPG and, much more broadly, in its role as a major supplier of building materials for the industry. I was delighted to see that, earlier this year, Travis Perkins launched an escrow agreement with Close Brothers Property Finance to support SME house builders. The initiative means that SME house builders can access building supplies and materials directly, without often lengthy pre-approval checks. That tackles one of the major challenges faced by SMEs when setting up special purpose vehicles on their developments. Travis Perkins is confident that the move significantly reduces financial risks for SME house builders, increases their supply chain stability, and reduces time spent managing cash flow. That is the kind of innovative thinking that we need to help manage the cost-of-materials issue, and I encourage other material suppliers to take inspiration from that.

The second big issue I will touch on is finance. The APPG has just submitted a call for evidence on access to finance for SME house builders, and we will invite right hon. and hon. Members to the launch of our report. I will not talk about everything in the report, but one of its clear themes is Land Registry delays. A number of developers have written to the APPG to raise concerns about extreme delays in the Land Registry’s process for recording changes of ownership of properties. Although that might seem relatively inconsequential, smaller SME house builders often obtain finance for their next development by borrowing against what is in their asset book. I have heard of cases of SME developers being more than a year into developing a well funded and successful development, but then finding themselves unable to borrow against it because the Land Registry had not recorded the fact that they bought the land years previously. I hope the Minister will look into that. Delays by state bodies that affect access to private finance are very troubling to me, and I implore the Government to address that.

Another significant barrier facing SMEs in this country is access to labour. The home building industry is a major employer in the UK; the planning, design and delivery of new homes directly or indirectly supports an estimated 800,000 people. However, the industry is facing a major skills shortage due to increased demand for housing, an ageing workforce and a severe loss of skills, particularly in the last recession. A January 2022 report from the House of Lords Built Environment Committee highlighted that 53% of SME builders were struggling to recruit carpenters, and 47% said the same about bricklayers. A report by the Federation of Master Builders found that between January and March 2023, 41% of its members had difficulty recruiting carpenters, and that bricklayers and general labours were also particularly difficult to recruit. Those are great jobs. They are well paid and give people great opportunities to be enterprising and plot their own course in life.

As well as being on the Levelling Up, Housing and Communities Committee, I sit on the Education Committee. There is renewed interest in the skills agenda, notably spearheaded by the Minister for Skills, Apprenticeships and Higher Education, my right hon. Friend the Member for Harlow (Robert Halfon). I hope he will listen to the sector and providers and work with DLUHC, which is crucial to success, not just because of its housing role but because of its devolution responsibilities. It is key that there be no sector skills gaps, or unnecessary barriers to entry into skilled vocations along the further education learning route.

The growing labour issue coincides with decreasing numbers of apprentices being employed by SME builders: 80% of responders to the Close Brothers report based in the north said that the supply and cost of labour is a major barrier to increasing housing supply. Just 50% said the same last year. At the same time, the number of respondents based in the north who are hiring apprentices dropped from 88% in 2021 to 48% in 2022, yet seven in 10 contractors’ apprentices are trained by SMEs. That makes up 90% of training capacity, according to the Construction Industry Training Board. That is important, because housing stock is desperately needed in this country to meet demand. To put the challenges in wider context, according to the Federation of Master Builders, SME builders could deliver up to 65,000 homes by 2025, compared with 12,000 in 2021, given the right conditions.

I turn to the big one: planning. I know colleagues are very nervous about planning—likely even more so after last week’s local election results—but it would be entirely remiss of me to discuss SME house builders without discussing the one issue they raise with me more than any other: the planning system. According to Close Brothers, 93% of SME developers regard planning as a barrier to their growth. I know that the politics of planning extend well beyond this debate, and I appreciate that a great many arguments about planning reform have been made in this place and across the country over the past few years. I do not seek to wholly reignite that debate today, but I am already on the record as having said this in the House, so I will say it again: given our system for house building, removing the binding national housing targets is a mistake. When the history of this Government is written, that mistake will loom larger than it already does.

A different way was available—perhaps not entirely via zonal planning, but we could have gone some way towards the zonal planning system reset proposed by my right hon. Friend the Member for Newark (Robert Jenrick) in his time as Secretary of State for Housing, Communities and Local Government. That will come to be seen as a great lost opportunity. Not least among its potential benefits was its simplicity, and a reduction in the curse of 21st-century British life—process. The advantage of such a change to SME house builders, disproportionately affected by process as they are, could have been significant.

A top example of the curse of process is the restrictions placed on housing delivery by Natural England in respect of nutrient neutrality, water neutrality and recreational impact zones. Those are already holding up the delivery of 150,000 new homes, according to the Home Builders Federation. Phenomenally complex regulatory requirements disproportionately disadvantage SMEs. They do not have comprehensive process departments, in-house lawyers or administrators filling a floor—or, these days, working from home. It was an argument for leaving the EU that it could make us more nimble and not over-regulated; over-regulation always favours the bigger players and entrenches their non-productive bureaucratic advantages. Our becoming nimbler and less regulated has not happened yet; it needs to.

I am certain that conversations around zonal planning, housing targets and local plan compulsion will continue long after I end this speech, but I thought it important to touch on two potentially new points that Members may find illuminating. The first relates to the regular feedback I receive from SME house builders on their interactions with local authority planning departments. On a number of occasions, I have had troubling conversations with SME developers in which they told me that they have faced great difficulty with planning officers in authorities across the country, despite their schemes being small and relatively uncontroversial. I have spoken to people from across the industry in town planning, planning law and property public affairs, and this pattern of planning officer difficulty is demonstrated in many local authorities, regardless of party control or council type.

I have come to understand that this difficulty might well be related to planning officer case load. As one town planner recently explained to me, although a 20-unit brownfield scheme developed by an SME is likely to require less work than a 400-unit green-belt development led by a volume house builder, it will not require 20 times less work. The resourcing of planning departments, coupled with five-year land supply targets, means that it is more logical for many planning officers to devote their attention to large schemes promoted by volume house builders than it is for them to support SMEs through the planning process. For a planning officer, the pain and controversy of a 400-unit greenfield scheme can be severe, but once it is done, their housing target for the whole year might be met, which would never be possible if they devoted their attention to smaller, bespoke SME developments. That is why I think DLUHC needs to look again at the planning process—not to change it fundamentally at this late stage in a Parliament, but to see if anything can be done to make smaller-scale applications less onerous for both developers and planning officers. However, that is not just a job for Government.

Local authorities already have significant planning powers that they could use to ease the passage of schemes promoted by SME house builders. I was interested to read about one such proposal earlier this year: local authorities across England were encouraged to take inspiration from work that the Greater London Authority had undertaken through its Small Sites, Small Builders scheme, and to start granting outline permission for brownfield sites before they sold them to SME developers for redevelopment. If a local authority awards outline planning permission for a site before it is disposed of, it becomes, at the stroke of a pen, much easier for SME house builders to secure development finance. It also significantly reduces the risk of rejection by a planning committee.

A variant of that approach could also help the cause of the visionary work of the Bacon review, which is the culmination of countless years of expertise on the part of my good hon. Friend the Member for South Norfolk (Mr Bacon). It is a blueprint for advancing SME house builders, housing numbers, and individual freedom and liberty. The Government commissioned the review and promised that they would act on its recommendation. Perhaps the Minister could update us on progress in on that.

The SME house building sector can be a real asset for the United Kingdom. It is full of creative, resourceful people who, more often than not, deliver a high-quality product on harder-to-develop sites. The sector faces real challenges, so it needs a Department and a Government who are open to ideas, especially ones that can be implemented quickly. My hon. Friend the Member for Weston-super-Mare (John Penrose) has ideas for eminently SME-friendly ways to remove planning restraints, including by building up more than out, and by adding a storey or two to existing housing. It would add to volume, producing a quick boost to the SME sector, avoid overbearing the development sector, and protect greenfield all in one. I look forward to working with him to progress those ideas with the Department.

I have proposed similar ideas through amendments to the Levelling-up and Regeneration Bill. Over the last year, with the support of almost 50 organisations including Barratt Homes, G15, Optivo, the National Housing Federation and a range of SME and industry leaders, I have worked with key stakeholders to shape a small sites planning policy, which could redefine the fortunes of the sector. Through simple tweaks to the national planning policy framework, it would not only streamline the planning process, but also allow developers to deliver more affordable housing. The small sites policy could lead to over 1.6 million more homes being built on under-utilised sites across the country, helping SME house builders to thrive and regain their position in the housing market. From levelling up to housing delivery and enterprise, we believe that the policy could contribute to a virtuous circle that helps the Government to meet a number of their economic and social targets. I look forward to the Minister’s update on the indication the Secretary of State gave on the Floor of the House that my small site policy proposals would be taken on board in future.

The growth of and support for the SME house building sector are key to arresting the decline in home ownership among younger people. The sector requires our time and support, and the APPG does good work trying to support it. Lots of colleagues get what we are trying to do. I have named some, and I could name many more from across this House, including my right hon. Friend the Member for Middlesbrough South and East Cleveland (Mr Clarke), and my hon. Friends the Members for Dover (Mrs Elphicke), and for Walsall North (Eddie Hughes). I also sincerely thank those who have attended today’s debate.

I need to start the Front-Bench speeches at 3.28 pm, so perhaps colleagues could be mindful of that.

It is a pleasure to serve under your chairmanship, Mr Robertson. I sincerely congratulate and thank the hon. Member for Northampton South (Andrew Lewer) for introducing the debate, which is of such importance. Many of us prefer SME house builders because of the relationships they have with the communities in which they build, creating local employment and having a sense of—dare I say it?—ownership and responsibility to those developments for the generations that follow.

As of April this year, our communities in the lakes and dales have been served by the Westmorland and Furness unitary authority; before that, South Lakeland District Council covered all of my constituency. I am proud to say that over the last few years, working with local developers and housing associations, we have built well over 1,500 new genuinely affordable social rented properties. I disagree slightly with the hon. Gentleman about the role of planning. My sense is that if we are very specific about the housing we need, we are more likely to get it, whereas if we are more lax and give more freedom, people tend to hold out for a sunny day and seek the biggest possible dividend.

There was a lot of debate during last week’s local elections—it is an ongoing debate—about whether and where one should build houses. One reason that planning authorities are often suspicious of developers, large and small, is their concern about what will happen to the properties once they have been built. Will they be lifted? Will they be affordable? Will they remain part of the housing stock for the community for long? Among the reasons why developments are rejected, and why there is sometimes a less than positive attitude towards developers, is a fear that those developers may not be all that signed up to what happens to the homes and their tenure after they have been built. That is particularly relevant in the Lake district, the Yorkshire dales and other parts of Cumbria.

It is a pleasure to speak under your chairmanship, Mr Robertson. I congratulate the Backbench Business Committee on granting this debate, and my hon. Friend the Member for Northampton South (Andrew Lewer) on securing and leading it.

Before I came to this place, for 27 years I practised as a chartered surveyor in Suffolk and Norfolk. Much of my work focused on the small and medium-sized house building sector, helping to secure planning permissions for sites and then selling them. Today, my interaction with the sector is less direct, although the conclusion I have reached is that it is now in a far less healthy state than it was. Some might say it is fighting for its very survival, and everyone in every area is far worse off for that.

It is important to highlight the advantages of a vibrant SME house building sector. Those businesses not only build much-needed homes, but do so with ingenuity, providing well-designed and bespoke properties, often on sites that present construction challenges that larger house builders shy away from. As they are deeply embedded in the local communities where they live, they have a sense of pride in the homes they build, which enhances the local street scene. They also have a significant positive impact on the local economy. They employ apprentices, engage architects, buy from local builders’ merchants and work with other local businesses such as electricians, plumbers and landscape gardeners.

At a time when we need to be boosting economic growth, there is an urgent need for a vibrant local SME house building sector right across the UK. Against that backdrop, it is concerning that the sector is not in rude health. In March, a report commissioned by the House Builders Federation, in partnership with Close Brothers Property Finance and Travis Perkins, found that planning delays and rising costs are crippling SME house builders. The conclusions are stark. Securing planning permission is the major barrier to growth. Those house builders cannot find sites. Local authority staffing shortages are exacerbating the problem. Rising material and energy costs are also a major concern. As we have heard, more than two thirds of the house builders are impacted by the nutrient issue, which has stricken development in over a quarter of local authority areas in England.

It is a pleasure to serve under your chairmanship, Mr Robertson. I thank the hon. Member for Northampton South (Andrew Lewer) for securing a debate about such an important issue, and it is good to see the housing Minister in her place today.

I have taken part in a lot of Westminster Hall debates about housing under this Government and spoken to a lot of different housing Ministers over the past decade—14, to be precise. Since 2013, we have had the former Member for Hertford and Stortford, Mark Prisk, who lasted 13 months; and the former Member for Keighley, Kris Hopkins, who lasted 10. Impressively, the right hon. Member for Great Yarmouth (Brandon Lewis) served a whole 24 months. The former Member for Croydon Central, Gavin Barwell, lasted 10 months; the right hon. Member for Reading West (Sir Alok Sharma), six months; the right hon. Member for Esher and Walton (Dominic Raab), six months; the right hon. Member for North West Hampshire (Kit Malthouse), 12 months; the right hon. Member for Tatton (Esther McVey), six months; the right hon. Member for Tamworth (Christopher Pincher) an unprecedented 23 months; the right hon. Member for Pudsey (Stuart Andrew), four months—back to normal business—the right hon. Member for Nuneaton (Mr Jones), nearly two months; the hon. Member for North East Derbyshire (Lee Rowley), nearly two months; and the right hon. and learned Member for South East Cambridgeshire (Lucy Frazer), three months. I welcome the hon. Member for Redditch (Rachel Maclean) to her role. She is already a veteran housing Minister compared to those on that list.

I am making the point that the Government cannot possibly expect to deal with a housing crisis while constantly churning through housing Ministers. How can they possibly run the country’s plans to build housing and meet targets if there is a new housing Minister, on average, every nine months? When we debate the important question of why small and medium-sized house builders are struggling, a reasonable person might think it had something to do with the fact that we have had 14 housing Ministers in 10 years.

It is a pleasure to serve under your chairmanship, Mr Robertson, and I thank my hon. Friend the Member for Northampton South (Andrew Lewer) for securing the debate. I know him to be very knowledgeable on this subject, as we have heard today.

The biggest obstacles to the delivery of available housing with planning permission are Natural England, the Department for Environment, Food and Rural Affairs and the issue of nutrient neutrality. The Home Builders Federation has said that nutrient neutrality is responsible for the putting on hold of at least 120,000 new homes with planning permission in more than 74 local authorities, with an estimated 41,000 more homes not coming forward every year. Two thirds of SME builders have said that nutrient neutrality will be a barrier to increasing housing delivery over the next 12 months, so I share the grave concerns expressed by many in the industry about the practicality of the Government’s proposed approach to tackling this issue.

The basis for nutrient neutrality is fundamentally flawed, first, because the causes of high nutrient levels in rivers are agricultural run-off, the pumping of sewage into rivers and the failure of water companies over many years to upgrade their infrastructure to tackle the problem. Secondly, the contribution of new homes to the problem is very small in comparison with other causes, but the impact on building the homes our country needs is huge. Thirdly, new homes are more environmentally friendly and sustainable than old homes. New homes are more water efficient, so they can help to address these sorts of problems. There is absolutely no need to ban them. For Natural England to ban new homes is like the Department for Transport banning or taxing electric cars because of concerns about air pollution caused by dirty old lorries and smoky diesels. It is the wrong target and the wrong policy. It undermines rather than supporting important environmental objectives, it undermines growth and it undermines the Government’s housing targets.

I am grateful to my hon. Friend for raising the subject of nutrient neutrality. I have a constituent who is a small house builder, as were his father and grandfather. He runs a business and employs people, and he has done so for many years. He went bust during the crash in the late noughties—2009 or 2010—but he is back on his feet and building more houses. He came to see me last February to talk about the fact that despite having spent £750,000 of his own money on building a road under a section 106 obligation, which he had met, he has been told that he cannot finish his work. Is that not the problem? Do we not need to be supporting such people?

My hon. Friend is absolutely right to say that we need to support SME house builders.

In addition to the problems with planning, it is very difficult for smaller builders to grow, so I will end my remarks by looking at growth. Very often, the discussion around small and large house builders can divide one against the other—we have heard elements of that today. As with the supermarkets and the village shop, we need a range, not one or the other. We need all players in the market. Policy in this area must provide more support to SMEs. It must also make sure that we have the transition, growth, productivity, ambition and delivery that allow an SME to become a larger player.

In my discussions with the late Tony Pidgley of Berkeley Homes, we often discussed the nature of the house building market. Tony started his company in 1976, building and selling just four homes. He often said to me that it would be near impossible for him to achieve such a level of success today—to go from having a single site and a handful of homes to being a massive house building giant. We need to reflect on that and ensure that policies support the building up and transition of smaller to larger companies, and the successful reshaping of larger to less large where that is appropriate for a business. I hope the Minister will address that.

It is vital that we once again make the positive case for appropriate housing in our communities, to support regional jobs and skills through SMEs, and to provide more environmentally sustainable homes to sustain better life, education, health and happiness outcomes for all of our constituents. Housing can be a real force for good. We must do more to support smaller builders.

We need to leave two minutes at the end for the mover of the motion to wind up, so we have up to 10 minutes now. I call Chris Stephens.

It is a pleasure to see you in the Chair, Mr Robertson. I congratulate the hon. Member for Northampton South (Andrew Lewer) on securing this debate. I note that he chairs the APPG for SME house builders, and I look forward to its report. He touched on some of the issues, but I look forward to the report being published so that it can create a wider discussion around the issues facing SME house builders. The hon. Gentleman set up the APPG in reaction to the UK Government’s goal of delivering 300,000 houses a year.

Another issue that will be familiar to the hon. Gentleman and others, and which it is useful to mention as background, is cash holdings. Cash holdings have a greater significance for SMEs than they do for larger house builders, because they represent a much higher proportion of a company’s equity. As a result, SMEs have greater exposure in the early stages of development. The costs associated with land purchase, infrastructure and groundworks must all be funded before the developer can see some balancing of the debt from sales revenue. SMEs do not have the financial firepower of the volume builders, and often they cannot acquire even small sites to put into a land bank because any funding so committed does not earn an immediate return.

Scotland is leading the way in delivering affordable social housing across the UK, and Scotland supports SMEs. We must recognise that the increased cost of finance from interest rate rises following the crashing of the economy is particularly troubling for the cash flow of SMEs and house builders. There are wider challenges, and the context has to be considered, but the UK is one of the few major economies—including Russia, incidentally —to shrink in 2023. Wages next year are projected to be the lowest since 2006, and the inflation rate was the worst in the G7 last year.

There are also problems in relation to Brexit and the resulting lack of business investment. The knock-on financing issues and mortgage price increases have consequences for house buyers and builders alike. Other issues must be raised on behalf of not just SME house builders, but SMEs across the board. Research by the Federation of Small Businesses has shown that more than half of SMEs across the UK suffer crippling cash-flow issues as a result of the late payment of invoices. The figures show that over 18 months to two years, almost half a million businesses went bust because of that very issue.