Don’t rely on big house-builders to solve the housing crisis

If you thought that the UK’s major house building firms were the answer to the chronic UK housing shortage, think again.  Recent statistics show that Britain’s leading developers are still building fewer homes than they were before the financial crisis (Daily Mail, September 2018).

Analysts at AJ Bell puts the figures for the big three at:

• Persimmon: 16,043 homes last year and another 8,072 in the first six months of 2018, putting it on course to build 16,685 homes this year, below the 16,701 it built in 2006.
• Barratt: 17,579 homes built in the year to July, but still below the 18,588 homes built in 2008.
• Taylor Wimpey: 14,541 last year, down on the 14,862 homes it built in 2006.

Since the financial crisis, the UK population has jumped from 60.6 million in 2006 (ONS) to 66.6 million today, an increase of almost 10%. We now need to build at least 300,000 new homes per year to catch up. And it looks like the big fish in the UK building industry aren’t pulling their weight.

No wonder one of the most prominently touted solutions to dramatically increasing supply is to reduce the dependence on a small number of industry giants: “Rebuilding plurality in the industry would help bring about dramatic increases in housing output.” (Reversing the decline of small housebuilders 2017: HBF).

This is no easy task. With the financial crash, a downward trend in smaller UK house-builders was disastrously exacerbated. According to Stewart Baseley, Chairman of the Home Builders Federation, “we have lost thousands of SMEs during the last 30 years”. In the period 2007-2009 alone, one-third of small companies ceased building homes.

Research by the Home Builders Federation suggests that, if small builders were given greater support, they could make a big difference to the numbers. Returning to the number of home builders operational in 2007 could help boost housing supply by 25,000 homes per year. And even a return to 2010 levels could help increase output by 11,000 homes per year.

Bearing in mind that the Q4 2017 RICS Construction and Infrastructure Market Survey found that   only 12% of surveyors believed the UK will hit its 300,000 homes per year target in 2018, it certainly seems like it’s time to give better backing to smaller house-builders. And there are some interesting win-win routes to do that.

One of the major issues has been financing. Lenders’ experiences through the global financial crash have resulted in a drastic change in borrowing available to small builders for funding construction costs. But the current demand and the security builders can provide make this an attractive market for alternative lenders. And this is where you could benefit.

Participating in the new-build residential housing market doesn’t have to involve massive investment. Helping to drive the UK economy, while benefiting from the attractive potential returns could be within your reach, along with the potential for 100% IHT mitigation through Business Relief qualification.

One way to access these returns and the potential IHT relief is through Oxford Capital’s Estate Planning Service*. The Service aims for real returns by investing on your behalf in (among other things) loans to smaller, established UK house-builders to finance approved housing projects. It is available in subscriptions of £25,000.

Click here for more information on how you can back small, UK house-builders through the Oxford Capital Estate Planning Service.

* The Oxford Capital Estate Planning Service invests in unquoted companies.  Capital is at risk. Tax advantages are summarised based on current legislation. Tax treatment depends on the individual circumstances of each client and may be subject to change in future.