How LDS Sales Guarantees can stimulate SME housebuilders in England and Wales

How LDS Sales Guarantees can stimulate SME housebuilders in England and Wales

The UK Housing Crisis is one of the most pressing societal issues of our time, and it affects millions of people across the country. The shortage of available housing, particularly affordable housing, has caused rent and house prices to increase significantly over several decades. As a result, millions of people are living in substandard or unsuitable accommodation, and many others cannot afford to buy their own homes. This complex and long-term problem has its roots in the decline of social housing and the sharp rise in property values, which became prevalent in the 1970s and 80s.

Initially, around one third of homes across Great Britain were affordable social housing provided by local authorities, according to data by the UK government. However, the Thatcher government introduced further measures to the already-established Right to Buy scheme, which allowed council tenants to buy their homes at a reduced price. The Housing Act of 1980 brought even greater discounts, leading to more affordable and social housing moving into private ownership. This trend continued over the ensuing decades.

However, the flip side of this policy was the decline in homebuilding activity, while the population grew at a rapid pace. From 1958 to 1988, 7.5 million homes were built in England, whereas from 1988 to 2018, only 3.1 million were constructed. Even with the latest data, which shows that 223,820 homes were built between 2021 and 2022, this is still a far cry from the rate of development seen in previous decades.

As the number of homes dwindled while the population grew, these converging trends created numerous issues. Firstly, the number of people living in low-quality or unsuitable housing increased dramatically. According to the National Housing Federation, more than 8 million people, around 1 in 7 people in England, currently live in an unaffordable, insecure, or unsuitable property. Secondly, the decline in homebuilding and the increase in population numbers caused house prices and rents to soar beyond many people's reach. Consequently, more people are stuck in rental accommodation, unable to save for and buy their own homes.

The United Kingdom has long faced the challenge of meeting the demand for affordable homes, with estimates suggesting that between 300,000 and 350,000 new homes must be added annually to maintain an adequate housing stock. Despite successive governments making this a goal, the target has remained unrealized.

Official statistics from the Ministry of Housing, Communities & Local Government reveal that 243,770 homes were delivered in 2019/20, yet that number remains short of the one most agree is necessary. However, there is a silver lining - in 2021-22, net additions saw a 10% increase on the previous year, with 232,820 new dwellings added to the housing stock. Although this number is 4% below the 2019-20 peak, it is noteworthy that we are heading in the right direction of meeting the housing target.

Overall, the 232,820 net additional dwellings in 2021-22 represent a 0.9% increase in the previous year's dwelling stock estimate of 24.9 million dwellings in England as of 31 March 2021. Though much remains to be done, current trends suggest that the UK is making progress in tackling the housing crisis.

The UK Housing Crisis remains a significant challenge that requires urgent and innovative solutions. It is crucial to strike a balance between providing affordable housing options and increasing homebuilding activity, while also ensuring that people have secure and suitable accommodation. A comprehensive approach is required, combining different solutions such as policy-making, financial incentives, and sustainable development models, to tackle this issue and improve the quality of life for millions of people affected by the UK Housing Crisis.

LDS Sales Guarantees recognises the importance of sustainable and secure housing and believes that SME housebuilders play a crucial role in making this possible. There has been a decline in the number of SME housebuilders who now only build less than 10% of all new homes. According to the Government's Insolvency Service, 4,087 UK construction firms went out of business in the year to April - 2.4% lower than in March but 18.5% higher than a year ago. This is the fourth highest level of insolvencies in the construction industry since the financial crisis.

The construction industry has not yet fully felt the impact of the fall in private housing (the largest construction sector) due to the government's Mini Budget, or the government delays to roads and rail projects in infrastructure (the 3rd largest construction sector), which were announced in March. These delays have further impacted the construction supply chain, particularly the smaller specialist sub-contractors.

In the year to April 2023, a considerable 58% of the construction firms that went out of business were specialist contractors, and the remaining minority were civils contractors. Specialist contractors have faced difficulties in the last 3 years due to issues with material availability, rising material prices, labour availability and costs, IR35 and PI insurance cost increases, and planning delays. Similarly, main building contractors also suffered setbacks with 1,491 firms (36% of UK construction firms) experiencing insolvency in the year to April, highlighting their susceptibility to the same issues.

LDS Sales Guarantees promotes an alternative approach to the traditional development finance model by exchanging contracts with an SME housebuilder to acquire any completed and unsold homes on the site. Enabling the housebuilders to access improved credit profiles, additional lending, and a 10% deposit and removing sales risk. By spreading equity further with the 10% deposit, this offers more opportunities for SME housebuilders to undertake additional projects and develop more new homes. The LDS Sales Guarantee not only serve the housebuilder to build more home but could be a catalyst to save many in the housebuilding industry.?