The latest official figures show a continuing rise in the value of new construction work over the course of 2017 to the highest level on record to date. While the increase was driven largely by private sector growth, equating to approximately three-quarters of all new work, the numbers have done little to quell rising panic about the current state of the UK housing crisis.
Despite the initially encouraging sign, the latest figures do not take away from the sector’s ongoing struggles in 2018 which are most keenly felt by housebuilders. The most recent monthly figures showed a slight increase of 0.9% in construction output from Q1 to Q2, following three consecutive periods of decline, but private housing work was down by £214m. While new orders for non-housing construction work are up 8.0% year-on-year, new housing orders lag behind at 5.8%.
The huge disparity in housing and non-housing orders numbers highlight a clear flaw in the market – the need for increased investment to close the yawning supply/demand gap. In the same report, total permanent new dwellings completions reached 194,170 in 2017. If we add this on to dwellings from conversions and change of use in 2016/1017 (37,150), we get net housing supply of 231,320. If you then take demolitions, it's clear that we are nowhere near the 300,000 target set by government.
By levelling the playing field for investors looking to engage in the real estate sector, there is an opportunity for the efforts of SME developers to be buoyed by new money to create new housing to bridge the divide. While big housebuilders are often front and centre for active investors in the real estate space (the top 10 house builders built 60% of new private homes ensuring they control what gets built and when), the difference will be made by improving access to SME opportunities if we actually want to see a step-change in output. It is no coincidence that in the chart below, a clear correlation can be seen between overall net supply and the volume of SME house builders.
It is clear SMEs play a vital role in supplying much needed housing to the market but continue to struggle to attract the funding they need. Up to 54% of all SME builders cite access to finance as a major challenge to delivering homes.
The construction industry requires greater investment to boost its housebuilding capabilities, while investors are increasingly seeking better access to attractive real estate investment opportunities. With no shortage of liquidity in the retail markets, and investors demanding better returns than they get in traditional savings schemes or at banks all we need now is a provider to offer a comprehensive solution addressing both these issues, while simultaneously plugging the UK’s housing gap, and we’re one our way to solving a big problem.
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