The UK’s affordable housing stock deficit requires that 300,000 homes a year be built to keep up with demand. Currently, only 200,000 are being built. According to the Home Builders Federation, today’s SME residential developers create only 12% of the UK’s housing stock, in contrast with 40% in the 1980s. Without SME developers, the UK will struggle to reach its targets.
This roundtable, partnered and chaired by Taylor Wessing, involved delegates from the private financial and property sectors as well as representatives from the Ministry of Housing and Homes England, who came together to discuss how technology is helping SME developers access alternative funding for their projects, many of which provide solutions to large problems, such as access to and quality of space, and create more sustainable visions of housing development.
A large part of this decrease is SME developers’ access to finance, which has been hindered by economic factors, such as the 2008 financial crash and subsequent inflation, and political factors, such as taxation and planning policies. In a post-pandemic world, these issues are still at the forefront of the problem.
Challenges of traditional funding
Accessing development finance through traditional methods is a challenge for SME developers. These challenges can be because of funders requiring developers to provide pre-sale figures, personal guarantees, equity checks and because banks are wary of anything involving planning risk.
For some SME developers, access to the right kind of funding and how that’s assessed is important too. Some are offered individual project funding as opposed to development funding which can hinder SME developers being able to take on larger projects that would give a boost to the UK Government’s objective of 300,000.
One such developer is Xcavate Robotics, who has struggled to find development funding for the the large-scale, innovative approach of creating habitable spaces beneath gardens that could add 12,000 1 bed apartments to the UK’s housing stock, creating a sustainable solution to the rapidly diminishing amount of space available in urban areas.
Despite the innovative and potentially game-changing plans and ideas these developers have, there is always risk involved. This means that alternative funding comes with a higher price, but some are seeing that developers are willing to pay a higher price for their debt in order to not have to deal with banks at all.
What technology can do
There is capital available to fund new developments, and it only needs to be effectively distributed to grassroots developers for targets to be met. Technology has created new ways for SME developers to access this capital.
One way of doing this is through the TPX Property Exchange, a revolutionary property market that has been part of the FCA’s Sandbox program. The exchange has found ways to make property title deeds into liquid trade-able assets within many countries’ existing legislation, and one of its benefits lie in that it enables global exchanges to be made locally. This makes prices more attainable for the average house-buyer, normally at 51% of the usual asking price. Banks and investment companies are able to benefit from, and are willing to pay a premium for, the high liquidity of the market that combats hyperinflation and sees people investing their money into the liquidateable, fractionalised title deeds as opposed to the immobile property itself.
Peer to peer lending and crowdfunding platforms such as Bricktrade and CrowdProperty also put the power back into developers’ hands by allowing them to borrow or invest depending on factors that differ from traditional funding. Both companies offer streamlined services that deplete the stresses of accessing finance and provide support through the process. Kuflink, another peer to peer lending system, gives clear and efficient ways for developers to invest and access cash in an alternative way.
Efficiency, transparency and trust
Delegates throughout the roundtable emphasised that trust between SME developers and funders has never fully recovered from the financial crash of 2008. Access to alternative financing, despite the higher premium attached, is often favoured over traditional funders and banks.
Technology also makes the process of accessing finance more transparent and efficient. PROPSTER, a company that digitises the investment, construction and purchase process for properties, enables their clients to keep abreast of the process at every step of the way.
In order for SME developers to have greater access to funding, there needs to be shifts within the UK private and public sectors in how innovative development projects are assessed and how much capital is available in what would be considered high risk endeavours.
New technologies and peer to peer lending platforms are bringing funding to more developers, but it isn’t enough to ensure that grassroots projects that benefit communities, create healthier spaces and solve sustainability problems are being funded. More awareness of these developments and alternatives are needed at public and government level to ensure that funding is offered to developers who offer solutions to today’s housing crisis.
Emma Oakley, Partner at Taylor Wessing
Daniel Hirschfield, Senior Professional Support Lawyer in the Financial Services Regulatory Group at Taylor Wessing
Clare Harman Clark, Senior Professional Support Lawyer in the Real Estate and Construction Group at Taylor Wessing
Jag Singh, Head of Product at Bricktrade
Michael Bristow, CEO of CrowdProperty
Ashley Osborne, CEO & Co-Founder of Du Val PropTech
Edward Jezeph, Investments Team at Homes England
Laurie Marsh, Director – Living Capital Markets – Funding at JLL
Narinder Khattoare, CEO of Kuflink
Jessica Williamson, PropTech Strategist at Ministry of Housing, Communities and Local Government
Isla Kennedy, Director at My Property and Home
Milan Zahradnik, CEO & Founder of PROPSTER
Antony Abell, CEO & Co-Founder of TPX Exchange
Sammy Pahal, Managing Director at UK PropTech Association
Senake Atureliya, CEO of Xcavate Robotics