The housing crisis is one of the most important policy challenges we currently face. As the gap between supply and demand grows, the lives of hard-working families become harder.
While there are obvious societal issues, the economy also suffers. In 2014, Bank of England governor Mark Carney admitted that the UK’s booming housing market had become the biggest risk to financial stability, citing a shortage of homes as the fundamental problem.
Since 2006, the UK housing shortfall has grown to more than a quarter of a million dwellings, pushing house prices up by 45 per cent across the nation, and 97 per cent in London. Issues with the property market only serve to add fuel to the rental market fire, with London rents increasing by 20 per cent over the past five years. As large property developers continue to warn that they’re only able to meet around 60 per cent of demand – it’s clear that something needs to change.
Just as small businesses are critical to the success of the British economy, so too are small housebuilders. There’s no doubt that, with the right support, large and small developers have the potential to solve the housing crisis together, which is why we were so frustrated to learn of the barriers they face in accessing finance. A 2014 National House Building Council survey found that half of small builders find banks’ reluctance to lend a serious problem.
High street banks are not in a strong position to help small housebuilders; bad debts from the last crisis have reduced their appetite to lend, while legacy IT issues make for a sluggish process. Throw in higher capital requirements through the introduction of “slotting” regulation, and you’re left with a cocktail of reasons why small property developers continue to struggle to access finance through traditional channels.
It is therefore unsurprising that innovation in financial technology has proliferated in recent years, giving developers the opportunity to choose from a diverse range of funding options rather than relying on traditional banks. Direct lending platforms are helping to meet demand by giving investors the opportunity to earn stable, predictable returns while lending directly to borrowers. In the absence of legacy issues, platforms are able to deliver the same level of credit assessment in a more efficient way for the customer. Developers are able to access finance in a matter of weeks rather than months.
The impact that direct lending platforms are having on the housing sector is already becoming apparent. Research from the Centre for Economics and Business Research found that lending through Funding Circle’s platform has already helped to build 2,200 new homes across the UK since 2014 – the majority of which are affordable family homes. Although there’s still a long way to go, it’s hugely rewarding to see the real impact direct lending is beginning to have not just on the economy, but on society.
This is undoubtedly a difficult time for the property sector, and for the wider economy as a whole, but I am confident that, with better access to finance, small housebuilders can and will be the answer to the crisis.