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Small and Medium-sized Housebuilders

Volume 831: debated on Wednesday 12 July 2023


Asked by

To ask His Majesty’s Government, further to the letter to the Prime Minister from housebuilding firms on 6 July, what steps they are taking to strengthen the viability of small and medium-sized housebuilders.

SMEs are an indispensable part of our housebuilding sector, and we are committed to strengthening their viability. We are providing financial support through our £1.5 billion levelling-up home building fund, which will help SMEs build around 42,000 homes. Through the £1 billion ENABLE Build guarantee scheme and the Levelling-up and Regeneration Bill changes to the planning system, we will further support SMEs in making the planning process easier to navigate, faster and more predictable.

I thank the Minister for her genuinely helpful Answer. With planning permissions at an all-time low and taking longer, the Home Builders Federation says that SME builders are going out of business now, while 145,000 desperately needed homes are on hold due to, to quote its letter to the Prime Minister, the Government’s “anti-development policies”. Does the Minister agree that this is largely a result of policy conflicts and mixed messages from the Government, as reported even today in the Times? It might be helpful to SMEs if they knew what the Government were doing about the 48 local authorities that have paused or withdrawn their local plans and the 74 that are affected by Natural England’s nutrient neutrality building moratorium. SMEs in these areas need urgent action; they cannot just pack up and go elsewhere.

I have explained how we are supporting them financially, but we are aware that the planning system, for example, is not as user-friendly as it should be to SME builders. That is why we are making changes in the LUR Bill, but we are also trying to ensure that the planning system is now better funded, so any time now we will see an increase in planning fees, for example, by 35% for major applications and 25% for other applications. All this investment should make sure that SMEs find the system simpler and easier to use, and that therefore they can access it and build more houses for us.

My Lords, the letter to the Prime Minister refers not to an anti-development policy but to an anti-development environment. I submit that the anti-development environment is in part caused by the fact that people are fed up with the large-volume housebuilders building identikit housing estates up and down the country, and that the people more likely to reflect the desires and wishes of local communities are the smaller, SME housebuilders.

The problem is also in design. We have had the Royal Fine Art Commission, which gave way to the Commission for Architecture and the Built Environment, which in turn has given way to the Design Council, but none of these bodies has really had teeth. What more can we do to ensure that there is greater control over the sort of properties we are building in the country, to give more training to local planning officers and to increase not only their quantity but their quality?

I think we need both types. We need the large developers building large numbers of houses; we also need to support our SMEs across this country. My noble friend is absolutely right. That is why we see quite a lot in the LUR Bill about beautiful homes for people in this country. Therefore, local authorities will in future have to produce design codes for their areas.

My Lords, one way of helping small and medium-sized housebuilders would be finally to end the pernicious practice of retentions. Many small construction firms, often with very low profit margins, are crippled by having up to 5% of the funds owed to them withheld, and sometimes never paid at all. Roofing firms alone are currently owned £300 million. This prevents them investing in growth through skills or technology, and may even force them into insolvency. There were over 4,000 construction insolvencies in the year to March 2023. What specific progress are the Government making to deliver their long-standing goal of ending retentions by 2025, and specifically in removing retentions from all public contracts?

The noble Lord brings up a really important issue. I understand that other government departments apart from DLUHC are meeting the sector and working on this issue. We will deliver for the sector as soon as we possibly can.

My Lords, securing planning permission is the major barrier to growth, according to 93% of SME builders. The Minister has mentioned the Levelling-up and Regeneration Bill a couple of times. In order to make a real difference quickly and promote the use of SMEs in local authority tenders, will she accept our Amendment 244, which asks local authorities to consider SMEs when granting planning permissions?

My Lords, further to my noble friend Lord Swire’s excellent question, the number of sites with planning consent for fewer than 100 dwellings has fallen by 38% over the past five years. These are the sites most used by small and medium-sized builders. Is there not a case for the planning system to promote much more effectively the use of smaller sites, not just to help smaller builders but to strengthen and diversify the construction industry and accelerate the delivery of new homes?

My noble friend is right. That is why the NPPF includes policies to support SMEs; for example, it sets out that local planning authorities should identify land to accommodate at least 10% of their housing requirements on sites no larger than one hectare. That might seem large, but we also make it clear in the framework that local planning authorities should work with developers to look at subdivisions in those areas where we could help speed up the delivery of homes, particularly by SMEs delivering those homes.

My Lords, the brickmaker Forterra has shut its Howley Park brickmaking plant because of a 31% decline in demand for bricks in the past 12 months. That coincides with news that, in this last financial year, the Minister’s department has sent back to the Treasury £225 million unspent on affordable housing. Is it not time that there was some connection inside the department to make sure that the available money is spent on affordable housing, possibly affordable social housing as a countercyclical measure at a time when the private sector is under such pressure?

I do not know whether the noble Lord is aware, but we have been through quite a lot of economic volatility, which has obviously led to developers’ slowdown. Therefore, the amount of money mentioned in the Guardian article that I believe the noble Lord is referring to, about money going back to the Treasury, is not quite correct. It is actually being put into projects of more than one year, so it will be forward spent. As the economy strengthens, as it is doing now in the housing sector, that money will be available to build affordable and other housing.

My Lords, the steep decline in SME builders is deeply disturbing. Their market share has dropped from 40% to 10% in the past 35 years. How does increasing the market dominance of a small number of big players square with the Government’s often-mentioned mission to drive economic growth through innovation and competition?

As I said in answer to a previous question, we need both. We need everybody, including small builders, local authorities and larger builders, to make sure that we build the houses that this country urgently needs. I am aware that the SME sector is currently struggling with challenges, particularly with the macroeconomic climate. We will continue to prioritise supporting the industry and local areas and delivering the safe, high-quality homes that this country needs.

My Lords, the House often discusses problems of labour and skills shortages. Yesterday the All-Party Parliamentary Group on Apprenticeships, of which I declare that I am an officer, put out a report, one focus of which was the difficulties that small and medium enterprises, including builders, are encountering in being able to take on apprenticeships and see them through. What are the Government doing to deal with that pressing issue?

My Lords, it is a pressing issue. The interesting thing is that we recognise that the SMEs play a crucial role in promoting skills in the construction industry and are responsible for many of the training programmes, particularly for new entrants into the sector. We are supporting construction skills through the Construction Industry Training Board, which last year spent nearly £150 million on training grants and apprenticeships across the sector. It is important that we continue to support them, because we need these skills in the sector and we need to grow it.