Is government support for housebuilders enough?
12 June: The UK government has introduced a range of measures to support all businesses during the COVID-19 crisis, but how well are these working for construction? Should more be done to avoid serious long-term consequences for housebuilders, particularly SME builders?
The main COVID-19 schemes available to housebuilders are the COVID Corporate Finance Facility (CCFF), offering support to larger PLCs, and CBILS (the Coronavirus Business Interruption Loan Scheme), which is more appropriate for small and medium-sized builders.
David O’Leary, policy director of Home Builders Federation, says that for the larger builders, the CCFF programme seems to be working well after some initial teething problems around eligibility, and many of the volume builders now have access to the facility should they require it. However, it’s a different story for the SME contingent, which builds roughly 40% of the UK’s new housing stock.
Of the 60 or so accredited lenders for CBILS, only a small number are established in the specialist development finance space. The negative effects of this have been two-fold.
Firstly, many approved lenders are prioritising providing loans to their existing customers, and SME builders may not be on their books because they are not specialists in this area. And secondly, the complex way in which house builders are financed is either leading to them being classed as ineligible or being placed at the back of the queue, simply because lenders aren’t sure how to assess their finances.
O’Leary explains: “Another frustration has been that there are relatively few accredited lenders who have a knowledge of house building. It would be helpful to see more accredited lenders with a background in the sector who already have some interest in the sites on which small developers in particular need some assistance or flexibility.”
This is particularly frustrating given the government is aware of the need for bespoke financial products for the industry, and specifically SME builders, as they’ve previously introduced interventions such as the House Building Fund.
But, following clarification on eligibility from the British Business Bank, O’Leary is pleased that a small number of businesses are now managing to access these loans and hopes this number continues to grow. He was also pleased that the government approved VAT deferrals, a move that’s helped to ease cash flow for SMEs.
In terms of what else the government could do to support house builders, O’Leary points to the outgoing Help to Buy scheme, which has buoyed demand for new houses since it was launched in 2013. While its imminent closure in 2021 meant we were likely to see increased sales of new properties during 2020, but this is now heavily constrained by the enforced lockdown and the reduced capacity on sites due to social distancing rules. Over the longer term the switch to a smaller, more limited Help to Buy scheme is likely to impact the sector and O’Leary believes an extension would help keep demand high. He also believes a less complex planning system would help with investor confidence on the supply side.
There are many challenges ahead, with the whole building sector having to adjust to the ‘new normal’ of working within social distancing guidelines and the impact that could have on productivity.
“No one really knows yet if this means they’re going to be operating at 50% of previous capacity, or 70%, but there will undoubtedly be a knock to production,” says O’Leary. He acknowledges that some of the announcements from the Housing Secretary have been helpful, particularly extending the working day to allow to more trades into sites and allowing house building at different points during the day. It’s also possible that these changes due to COVID-19 could improve site efficiency as work has to be carefully coordinated in advance, although the additional planning required also brings additional cost.
With the possibility of an impending recession things can change swiftly. However, given the current outlook, O’Leary is confident about the house building industry’s ability to bounce back from the COVID-19 crisis. With consumer interest remaining strong and mortgage loan-to-value rates returning to normal after a mid-lockdown wobble, there is the feeling that the industry can weather this storm.