Brown vs. Green: The Residential Development Battle

Why are Brownfield sites being overlooked in favour of development on Green Belt land and how is the divide between small/medium house builders and volume house builders impacting the availability of public sector housing?

Years ago in 1995, small and medium house builders were delivering approximately 40% of new housing.
However, fast forward almost a decade and you find an entirely different situation. Less than a quarter of all dwellings are currently delivered by small or medium builders, with approximately half of all new homes developed by just eight organisations. (Figures accurate at the close of 2013).

So Why Is This Such A Problem? And How Is It Impacting The Sites Chosen For Development?

More and more developments are being approved on Green Belt land – land originally kept in reserve in order to limit urban sprawl and maintain forestry and agriculture.
Contrarily, less and less Brownfield sites are being developed, despite the fact that this land has previously been used for industrial or commercial uses, and developments on these sites could potentially help to alleviate pressure on housing expansion by boosting supply levels.

But What Does This Have To Do With Small And Medium House Builders?

Despite the fact that small to medium house builders have the capacity to increase the number of houses available on the open market due to their quick completion and marketing rates, they often face a variety of problems obtaining the land to develop on in the first place.

One Of The Big Problems Facing The Small Or Medium Developer Is The Way The Current UK Planning System Operates.

At the moment, the planning system limits the amount of land that can be allocated for housing developments so as to prevent 'urban sprawl'.

This makes development land potentially very expensive, and means that smaller builders might be unable to access land due to these low supply levels and the high expense.
This problem then has an impact on the sorts of sites which get developed.

Volume house builders typically use something called a Land Banking Strategy in order to access land for development.

This means that they might buy land in advance of it being allocated for development, and may even influence the planning authorities on which sites get allocated (this is particularly common if a planning authority is under pressure to meet targets).

With a volume house builder, the need for the maximisation of returns limits the availability of appropriate land for development, which means that the smaller Brownfield sites are often overlooked in favour of Green Belt sites (those which are usually easier to develop on and deliver a larger quantity of profitable housing).
Additionally, the size and increased profit margins of volume house builders means that they have more fiscal freedom than smaller builders.

Acquiring land through mergers and acquisitions is still a frequent route for volume builders, which in turn freezes out smaller developers.

The recent financial crisis also impacted the potential loans available to smaller builders, with residential development being viewed as volatile and thus unattractive to potential lenders.
Indeed, whilst 20% of small to medium enterprises in the UK are construction based, only 7% of equivalently sized companies are awarded bank loans. Limited resources mean that these smaller firms are finding it increasingly difficult to find the resources to even make it through the prequalification and planning permission phases.

The Impact Of This Volume Dominance

Currently, public sector contracts are worth approximately £37billion per year. That's around 38% of UK Construction output.

With smaller firms finding it so hard to win public sector work, more and more housing is being allocated on Green Belt sites. 51% of councils with Green Belt land are preparing to allocate some for development. Obviously, this is not a desirable outcome.

So What's Being Done?

The government has proposed a couple of initiatives to try to counteract the dominance of volume house builders in the current development market. 

The £525million Builder's Finance Fund was announced in this year's budget, with the aim of unlocking 'stalled' development sites.

The government has also proposed to work closely with local councils in order to reduce the uncertainty caused by planning and to limit the costs of planning applications, in order to provide more opportunity to smaller house builders.

Are these initiatives enough? We'd love to hear your thoughts. Tweet us @ThatcherAssoc or visit Our LinkedIn page and leave a comment!