It's all changed again at the Department for Levelling Up, Housing and Communities, with Racheal Maclean appointed the Minister of State for Housing. In this week's blog, we unpack some of the ongoing issues facing SME homebuilders and how addressing those will solve the bigger housing stock problem we face.

At the time of writing, the UK's 15th Housing Minister since 2010, Rachel Maclean, has just been appointed; it is worth noting that we do produce these articles in advance, so on the assumption, she is still in her post, she will now be reviewing an ever-expanding inbox of critical issues for housing. Consistently regenerating like a political Dr Who, the newly appointed housing minister will have to face down not the Daleks or the Cybermen but rather the cladding crisis, the generation rent crisis, the housing stock crisis, and the planning crisis. They say that when you face a crisis, you know who your true friends are, and unfortunately, after months of dithering, the public patience has waned, and there will be few. Even seemingly imperturbable television presenter Kirsty Allsopp tweeted, "you are our 6th Housing Minister in a year; this isn't your fault, but you'll have to forgive those of us involved/deeply concerned about UK housing for not believing there's any point in meeting up with you to discuss these issues".

Flippancy aside, there are some severe issues to contend with; the UK has some of the oldest housing stock in the western world, and this isn't a new problem; it's something that's been baked into the system since the end of the second world war. However, through a combination of antiquated planning systems and funding targeted at yield rather than well-insulated affordable homes, the red flags have been there to see; we have just been choosing to deal with other problems first.

The markets have reflected a rally in UK homebuilding; it's been part of the FTSE revival, and at one point, Barratt, Persimmon, Bellway, and Redrow were all trading up on December lows, perhaps reflecting labour and material costs decreasing, and some positive sentiment on the tape regarding rates, however, it became quickly apparent the market doesn't believe them. Deutsche Bank has downgraded all the above to a hold and Persimmon to a sell in their latest round of published analysis; they believe the bargain hunters are there to maintain prices in the housing market, but the forward sales data that's crucial to influence the price for those businesses indicates that the recent positive news is already priced in and worse could still be to come.

So, focusing on the housing stock crisis, one glaring statistic is the shortfall aligns quite well with the number of SME developers leaving the market. According to the Home Builders Federation, back in 1988, around 40% of our homes were built by SME developers; by 2017, this was 12%, and it's now sub 10%. Of course, in any capitalist market, a collection of businesses will always rise to dominate the sector. In housing, that's no different, but it's not a case of debating if there is a place for SME developers still in housing; it's a case of housing doesn't work without SME developers. The public perception of new build quality is at an all-time low; who would have thought that "snagging" TikTok videos naming and shaming developers would have been a viral phenomenon in 2023 in the way it has, and the stats back this up. The average new build off the conveyor belt has anywhere from 250-300 snagging faults, according to John Cooper of New Home Quality Control – the experts behind the viral TikTok videos highlighting "new build shockers" if you go back only to 2005, this was around 50 -80, there is some evidence to show quality has diminished as well as growth.

At Invest & Fund, we are big fans of disintermediation when it comes to lending; we want to offer something different away from the centralised banking model, and perhaps this ideology goes a bit further, maybe the key to bolstering the UK housing supply and solving all of the peripheral issues is simply increasing that percentage of SME developers in the market, lots more people building smaller numbers, of higher quality properties. After all, the lower that percentage has gotten, the more profitable it's become for the few and the more problems we have collectively encountered. The new Housing Minister must address dozens of things: planning reforms and making sites available for SME builders being the most critical. However, we can & will continue to contribute by providing funding and assistance from lenders willing to take commercial decisions to support the sector.

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