Large construction site

Large site acquisitions 'heavily biased' towards major housebuilders



The time, money and expertise required to navigate complex legal costs are putting smaller developers at a disadvantage when bidding for large sites.

Development Finance Today asked property professionals whether too many London large-scale development sites were going to major housebuilders and whether smaller developers would provide housing in a quicker time period.

Andrew Scotting, head of loan origination at Zorin Finance, pointed out the problem with large developers winning big site contracts.

“Large housebuilders are notorious for mothballing sites until they are ready to build.

“As a result, a site [may] not get developed until many years after its acquisition.”

‘Almost 50% of London’s homes are delivered by five companies’

Rico Wojtulewicz, policy adviser at the House Builders Association, pointed out that over the past two decades housing completions in London had barely risen above 20,000.

“Almost 50% of London’s homes are delivered by five companies and many local authorities have shunned small sites in favour of large ones [to satisfy] housing completion targets.

“The consequence of this has seen the percentage of new-build houses drop from 50% to 13%, a marked increase in phased development and fewer family homes completed because shared accommodation and small flats are deemed more profitable. London land prices have also skyrocketed, which has made the housing market less competitive.”

Andrew added: “The inherent expense and substantial upfront infrastructure and environmental costs associated with large sites, means that successful acquisition of them is heavily biased towards major housebuilders.

“Furthermore, the time, money and expertise required to navigate the complex legal obligations with local authorities further places smaller developers at a disadvantage.

“Large housebuilders also have a competitive advantage against their smaller counterparts, as their greater influence with planners enables them to negotiate purchases more effectively with the respective land owner.”

‘Smaller developers already build housing more quickly than the majors’

Rico added that many of London’s larger development sites would be perfect for locally employed SMEs.

“Smaller developers already build housing more quickly than the majors because the majority of SMEs must finish one project before moving on to another.

“This business decision also translates to planning applications as SMEs are more likely to deliver the affordable homes that were initially negotiated. 

‘Size sometimes does matter’

Bob Sturges, head of PR and communications at Fortwell Capital, doubted whether large projects would be completed any sooner in the hands of smaller developers.

"Size sometimes does matter; and in the case of large-scale development opportunities, it is often only the bigger players who are able to deliver the necessary financial muscle and logistical expertise to see them through.

"I suspect it's also the case when awarding contracts that the empowering authority has an eye to past performance, track record and the likelihood of a positive outcome.

“The major players, as might be expected, hold a compelling hand in this regard.”

Steve Turner of the Home Builders Federation added: “To enable the industry to deliver more much-needed housing we need to see more sites coming forward.

“Large developments and large builders will continue to play a huge part in delivering the new homes the capital needs, but we also need to see smaller sites coming forward that will enable smaller builders to play their part in addressing the shortage.”

Steve felt that London boroughs needed to identify and allocate a mix of site sizes to allow more builders to build.

Bob said Fortwell Capital was seeing plenty of activity among SME developers in the outlying and up-and-coming parts of the capital.

"Often, these projects are of a type that would not interest larger housebuilders, but are well-suited to boutique developers able to add individual flourishes usually absent in big development schemes.”

‘All developers are subject to much the same obstacles and frustrations’

Andrew pointed out that although smaller developers theoretically were better placed to build out sites more quickly, there were a number of headwinds which militate against this.

“The main obstacle which causes delays in the mobilisation and building of sites is the protracted planning process, in addition to the number of pre-commencement conditions that have to be satisfied before building works can begin.

“Additionally, due to their healthier cash flow and greater economies of scale, larger housebuilders are generally more able to build more quickly and also navigate unforeseen complications and expenses once the construction phase of the development has commenced.”

Bob concluded by adding: “…All developers are subject to much the same obstacles and frustrations inherent in the planning process.

“But the major developers, many of whom have built their propositions over decades, have access to resources the smaller players do not.”



Leave a comment