Levelling up time for small builders

You can’t level up without proper planning policy, argues Rico Wojtulewicz, Head of Housing and Planning Policy for the National Federation of Builders

The government has announced a £1.5bin ‘Levelling Up Home Building Fund’ to help small- and medium-sized housebuilders (SMEs) build 42,000 homes and it will form part of their ‘Levelling Up’ white paper. The details of the strategy are expected to be released during this month, but many will ask if it’s old money, old strategy; or, as required, a sign that the government finally understands levelling up needs policy enablement to best use funding promise?

To example this, it is worth exploring a previous failure and comparing that to what a coherent approach might be.

Funding permissions, not housebuilders

Much like demand-led and supply-devoid ‘Help to Buy’, previous iterations of the Homes Building Fund (HBF) suffered from misunderstanding the planning process and how to support SMEs.

The glaring issue with previous HBF approaches was that in order to draw down any money, planning needed to be in place. This cut out most SMEs as for the last decade, planning has been the greatest barrier to house building. 

After a spluttering start, the government changed the approach, so that to access lending, you needed to “already purchase a site in England that you have majority control of” and have “a clear route to getting planning consent when the loan offer was made”.

This improvement still led to a conundrum: some SMEs may own a site, or have an option on it but most will not because the land market is constrained by a council’s allocation process, which identifies and allocates sites to meet local housing demand. 

This allocation process pushes land prices up because if a landowner knows their site is allocated, even if it doesn’t have permission of any kind, the price skyrockets to levels only investors and big builders can afford.

Some SMEs will have smaller sites allocated but if a council’s housing demand is to deliver 2,000 homes over five years, the desire to more quickly permission a site of 35 isn’t all that great, therefore unlikely to be at the top of the ‘to do’ list. Evidence suggests this to be correct, with smaller sites taking on average 18 months to get permission.

What is most likely, is that SMEs don’t have control of sites, don’t own sites but are working with landowners on getting planning, or waiting for landowners to get planning themselves outside the allocation process. These sites fall into a category called ‘windfall.’

Speculative development

Windfall sites with planning are incredibly expensive, even compared to allocated ones, and due to competition for them, they don’t get much cheaper if they only have ‘outline’ planning, which is halfway to a permission, as lots more needs to be agreed to achieve a full permission.

Therefore, if you have an allocated or full permission windfall site, you have a “clear route to getting planning consent” but if you don’t, which is the case with most SMEs, there is another HBF eligibility barrier: the funding priority of “clear local support”.

Windfall is deemed ‘speculative’ and local people oppose speculative development, so even if you somehow convince Homes England that you have a clear route to permission and have control of the site, a campaign against you can end your lending request, or at the very least stifle it.

While an SME navigates all the above processes, they are still paying staff, vehicles, office costs etc and even new entrants who may have lower general overheads are restricted by the five home minimum and previous experience criteria.

It will surprise few that HBF isn’t all that popular with SMEs.

The solution

So, what is the solution? It’s quite simple. The government delivers its planning reform proposals, which, ensures planning certainty - using a local design code that achieves a full permission - creating a competitive land market - through area, not site-based allocations - and gives local authorities more borrowing power for infrastructure works, such as roads, schools, industry and transport.

The government also needs to give Homes England planning powers in areas where councils don’t have a Local Plan or aren’t meeting their minimum housing targets. This would allow SMEs to partner with Homes England and deliver on both their ambitions, as well as enable placemaking through strategic regional and national levelling up.

With a 75-seat majority, the government has an opportunity to really make a difference and set a strategic vision that delivers in the South - where housing costs and undersupply are forcing out young people and sustaining poverty – as well as reform the North, where homes are affordable and already being built in high numbers but growth sustaining infrastructure and employment is lacking.

David Cameron botched the ‘Big Society’, Theresa May mishandled the ‘just about managing’, so will ‘Levelling Up’ be lousy, or is Boris finally delivering where so many other grandstanding slogans could not?

Rico Wojtulewicz is Head of Housing and Planning Policy for National Federation of Builders