The newly elected Labour government announced some very ambitious targets in August, with a goal to build 1.5m new homes in the next five years. Many in the industry have doubts about this become a reality, given the on-going skills shortages in the building trade, ever lengthening times for planning approvals and the basic economics of building properties that will not just sell, but at a price that creates a profit for the developer. The sharp increase in borrowing costs since mid-2022 has affected many prospective buyers and also added an additional layer of financial risk for developers.
Over the last decade, since 2013, respective UK governments have chosen to allow more Permitted Development Rights to be utilised by property developers to make up for the increasing shortfall of newly built homes. However, as highlighted in a recent new report in our October edition, the build quality and energy efficiency of some ‘commercial conversions’ has also been questioned. Local councils, particularly those in London have also seen fit to utilise Article 4 planning restrictions to prevent conversions of former commercial buildings, with the aim of not wanting to lose employment space in their boroughs.
Building contractors and property developers going bust are of course nothing new and going back over many decades there is a great deal of evidence to confirm that property development can be a ‘risky business’.
Notwithstanding that, the appetite to become a property developer is still very evident as a report on page 28 of this edition highlights.
The Covid pandemic and the lockdowns in 2020-21 hit many businesses, including the building and construction sectors, hard and some whose business model was built on thin profit margins did not survive. So, what are the prospects ahead now for developers and what are the recent lessons that need to be acknowledged to de-risk projects.
One individual who is very well qualified to comment is Richard Little of the Future Homes Group, an industry veteran with over 50 years of experience in house building. Long-term readers of PIN magazine may recall a series of video interviews that we did with Richard some seven years ago. I recently caught up with him to learn what he has been doing of late, but also to hear his views about recent trends within property development and what he has observed as a consultant within the sector where he acts in an advisory capacity for developers.
“When considering our own projects along with those that we’ve advised on and those we’ve closely witnessed during the last five years’” said Richard, “there are some common weaknesses that have led to outright project failures but also lost margins for developers.
