Development Finance is Helping Developers Overcome Setbacks and Delays

The UK Government's determined effort to boost homebuilding across the country should be good news for property developers. However, despite £2.3 billion in subsidies, housing development projects may come to a halt as developers face serious setbacks and delays.

The impact of Brexit and the COVID-19 pandemic have seen material costs increase by as much as 21% last year (according to the ONS), limited access to labour, lengthened project timeframes, and financial difficulties for many developers. This was all before the Russian invasion of Ukraine resulted in more problems in global supply networks for developers. Furthermore, the government’s Environment Act of 2021 imposes costly new biodiversity criteria on developments.

Recent government subsidies to develop 1,500 hectares of brownfield land for 160,000 new houses should be an open invitation to developers and an exciting opportunity for growth and profit. However, the increasing costs, reduced labour and uncertaintly are impeding activity.

Projects hit - a third of projects on hold

According to a recent research, over a third of developers had to halt projects in early 2022 as labour costs increased by 15% and building materials such as steel, lumber, and concrete increased by 23%. Additionally, according to most forecasts interest rates are set to increase later this year, a rising source of concern for the industry with 93% saying they were becoming increasingly concerned about the rise in fuel prices.

Some insight into the rising costs and labour shortages that are threatening the pace of housebuilding are even worse with some analysis showing project costs have increased by 45%, and a survey by the Federation of Master Builders found that 40% of housebuilders are having difficulty finding carpenters and bricklayers.

However, concern over Covid has faded, with only 9% mentioning the pandemic as a concern.

Development finance can help developers overcome severe threats and capitalise on 160,000 new home target

Despite the growing concern and factors leading to delays or projects on hold, development finance is helping developers overcome uncertainty and get projects off the ground.

Property development finance can provide fast funding for experienced and first time developers for asset acquisition, ground up development, as well as overcome delays and complete projects. Property development finance differs from other types of bridging loan as it is not drawn in a single lump sum but staged to be drawn as and when the development schedule requires it, or when delays strike..

Ground-up property development refers to a completely new build of property, usually on a new site which hasn't been previously built upon or one that has been cleared, such as the 1,500 hectares of brownfield set for the creation of the 160k new homes.

However, the £1.8 billion brownfield funding only covers a small fraction of the potential scale of brownfield development, which experts believe could add up to 1.3 million new homes across the 36,700 hectares of English brownfield land. These experts argue that the subsidies announced will ‘barely scratch the surface’ of the true demand for new housing. Therefore, alternative sources of funding will undoubtedly be required.

Final thoughts

At bridging loan broker Finbri, Stephen Clark says. “The Government’s ambition to build more affordable homes is admirable and very welcome. Yet without reliable and flexible sources of finance, and against a backdrop of spiralling costs, it will be hard to achieve these goals and bring homeownership to a wider public.”