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Help to Buy: Damaging the House Building Industry?

14/09/17
Posted by: Tom Morris

Help to Buy: Damaging the House Building Industry?

With the recent scare to the industry over Help to Buy being withdrawn sooner than 2021 sending the price of shares for the listed house builders into freefall it got me thinking as to whether Help to Buy is actually a good thing?

Yes, help to buy has helped get the wider industry moving. More people have been able to move into new homes, but the majority of these will have been with the larger plc house builders.

Persimmon confirmed that up to 50% of their sales come from the Help to Buy scheme, and I firmly believe that a similar percentage can be found with the other listed national house builders. Therefore, it does beg the question have the big players become reliant on the scheme?

With the top 3 house builders by output Persimmon, Barratt and Taylor Wimpey accounting for just over a quarter of the new build output each year then we are now as an industry beholden to Help to Buy.

The output of new homes has resolutely stayed the same over the past few years, and many in the industry believe that the target of 200,000 homes output by 2020 a pipedream, and simply not possible at the current rate.

In a recent study by Adam Challis of JLL he noted that any increase in output is now driven by the SME market or PRS developers.

The evidence is starting to stack up that perhaps the industry has become lazy, and needs constant Government intervention, such as Help to Buy.

The removal of Help to Buy will obviously be a massive shock to the system. However, it might well be a good thing.

Any industry needs to evolve and change as time moves on, and by becoming dependant on the government leaves you very much at the beck and call of the Political Will of the day. Essentially, the Government could decide tomorrow to stop it immediately, and where would that leave us?

I am a massive promotor and fan of the SME house builder. I believe that these companies are the life blood of the industry. You often find that they innovate and change the industry for the better. The SME’s are nimble, they can change direction quickly and plan accordingly to the customers needs and desires.

In my opinion, the government should look at supporting and promoting these companies rather than the big listed companies. Obviously supporting a large company is a lot easier, but inevitably we are just lining the pockets of shareholders. It has been proven that the help to buy scheme has increased output which is the very thing it was set up to do.

Perhaps a better solution would be to set up regional funds that only the SME house builders can tap into. By saying that any company with a turnover over a certain amount i.e. £150m is not able to access the fund. The money lent to these SME’s is purely for buying land and that land must be built on it 18 months after purchase if not they have to pay a higher interest fee i.e 10% above base or pay back the money.

We need to release the industry from the current constraints, plc’s and national house builders are by design slow moving, clumbersome entities and they always look after shareholders’ interests first. The SME’s are often owned by inspiring entrepreneurs, or private equity backed so they are all about growth and expanding market share.

By injecting cash and impetus directly into the market that is actually increasing output at the moment we have a chance to increase output. It would perhaps also lead to the listed house builders changing tack, producing more houses and they start to be caught up by other smaller regional players.

I think we have a golden opportunity to shape and change the industry for the better and whilst the house building sector is very traditional in its views we still need to innovate and change.

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