Hugh Gibbs, Co-founder of SearchLand, explains how small property development companies can keep up with the competition.
The development and construction sector is one of the major pillars of the UK economy. GDP from construction in the UK reached £29,812 million in the first quarter of 2021, according to ONS data. As such, the Government regularly supports and incentivises development, particularly the construction of affordable housing, as demand for residential properties continues to increase. Housing England has pledged to deliver an average of 300,000 new homes a year by 2025. And while SME developers have a key role to play in contributing to the existing housing stock, several factors are holding them back, ranging from the limitations of land availability to competing with large-scale corporations or grappling with the complications of acquiring planning permission.
Levelling The Playing Field
Throughout the 1960s and 80s, SME housebuilders played a pivotal role in delivering new homes in the UK. And yet over the past decades, they have steadily lost their market share – in 1988, they accounted for four out of ten new-build homes in the UK, a proportion that by 2018 had dropped to just 12%. This disparity between larger and smaller players has not gone unnoticed by the Government. Indeed, the Housing Secretary, Robert Jenrick, said in 2020 that “small housebuilders are vital to building the homes this country needs”, before going on to pledge £1 billion in funds to support them. Further, the limitations of the current planning system have also been addressed in the government’s recently proposed reform of the section 106 agreements, which currently puts small developers at a disadvantage, given the lack of certainty and delays which can run into many months. The reform aims to provide more certainty on delivering planning consents in shorter spaces of time.
Having the Government’s backing on planning reforms and improved access to funding will no doubt provide a valuable shot in the arm for SME developers. However, to withstand the challenges they face in the planning system, given the disadvantages derived from their scale, small housebuilders need to start outperforming their larger counterparts in other innovative ways.
Harnessing The Power Of Big Data
The process of site sourcing is a vital first step in the development process, however, many developers, small and large, are hindered by their inefficient, manual methods for sourcing off-market sites. And while the scale of larger developers enables them to better withstand the drain on resources that having a dedicated site sourcing team implies, this same process of diligently gathering and comparing site data, planning applications and constraints can present a significant burden to SMEs. This information is scattered, isolated and often hard to access – and the exorbitant price point of some services that compile them can be prohibitive for smaller companies. Moreover, it can often lead to many sites with high potential being overlooked.
During my years working in the planning and development sector, I saw how having the right tools in place to access the relevant data could remove the pressure for businesses to have local knowledge of an area, enabling smaller players to make strong quantitative assessments remotely. By using data efficiently, smaller developers can become more strategic and methodical in their processes, taking what they know works in one area and re-applying it to other areas of interest. Moreover, small business owners can utilise big data to help reduce operational costs, by optimising the management and allocation of human resources, which can significantly add value to businesses operating with smaller teams. Harnessing big data can improve every element of how a business operates and may very well be the head start SMEs need.
Finding The Silver Lining
Undoubtedly SME developers have been more vulnerable to the challenges posed by the COVID-19 pandemic. But in times of crisis, finding the silver lining is vital.While the feared ‘death of the office’ and ‘urban exodus’ have been overplayed, the pandemic has forever altered working patterns, as more and more companies adopt hybrid working as the new normal. This shift has in turn led to increasing demand for suburban and rural properties, altering the balance between demand and stock levels for homes outside cities. Anticipating and responding to changes in buyers’ preferences is where SMEs can demonstrate agility and meet the changing demand. Indeed, SMEs are ideally placed to capitalise on the increasing appeal of smaller residential development projects in suburban or semi-rural areas.
Staying Ahead Of The Curve
With green real estate firmly on the map, implementing innovative sustainability strategies is an area where SME developers can demonstrate value by staying ahead of the innovation curve. Research from the IEA shows that buildings and the building and construction sectors combined account for over one-third of global energy consumption and nearly 40% of total direct and indirect CO2 emissions. And indeed, building regulations and rating systems across the world strive to reflect the importance of incorporating sustainability metrics into construction and incentivising developers to build greener.
Elsewhere, research from Savills revealed 49% of homebuyers said green credentials had become increasingly important. Despite sustainability becoming a key area of focus in the office market, Savills found that very few offices in the UK currently hit the net-zero mark. With hybrid working patterns becoming the new norm, there is an opportunity for small- and medium-sized developers to tap into the gradual shift towards more holistically sustainable office developments that will provide a more desirable and collaborative working environment and will attract investors and occupiers alike.
There’s no denying that smaller players have a greater vulnerability to face the challenges of a less-than-perfect planning system. By anticipating future market dynamics and effectively utilising technology and big data to their advantage, SME developers will not only have a better chance to stay competitive – harnessing their agility will also enable them to stay one step ahead of the curve and plot a course that leads back to their rightful place in the market.
About the author: Hugh Gibbs is the co-founder of SearchLand, the all-in-one property data platform. SearchLand helps developers, site sourcing teams and investors to streamline their workflow and maximise their portfolio – by making it easy to sift through vast amounts of data, users can quickly establish who owns a piece of land or property, discover the prices paid, analyse planning applications, and much, much more. Before founding SearchLand in 2020, Hugh has worked in both private and public sector planning roles alongside running his own land finding business.