Is the Mulbury Homes collapse the tip of the new homes iceberg?
It has been announced that Mulbury Homes, a housing developer known for its affordable housing schemes, has gone into administration. Although only a small company with approximately 40 staff, it’s feared that up to 30% of other developers like it are very close to being in a similar situation.
The official line from Andrew Knowles, one of the administrators, is “The continued difficult trading conditions, rising costs, and financial pressures as a result of bad debt has led to a weakened cashflow position which has led to the appointment of the joint administrators.”
The problem for the industry as a whole is these factors are extremely prevalent with a number of other companies. Mulbury Homes has itself been trading for over a decade, building over 2,000 properties with a specialism in affordable housing. Despite having a number of projects in play for the future, they just could not trade on.
A recent statement from Mulbury Homes underlined this: “We had a strong pipeline of projects, and we were hopeful for the future. However, we have not been immune to the very challenging conditions facing the construction sector brought by the pandemic, planning delays, cost increases and supply chain issues.”
Having been researching where the pain points are showing up in the construction industry, specifically in the new home residential sector, it is plain that a huge number of industry voices have been predicting that home building in the UK is in a perilous state. The government needs to be supportive if it wishes to see a delivery of its 300,000 new homes annually, which presently hovers around only 178,000.
Looking at the present blockers in the industry, planning is a key problem. Until Gove sets out the framework moving forward, there is a very obvious scarcity of building projects with full planning attached. Land and development agencies have told me that in an effort to keep building teams together, builders are scouring around for projects that they can build hust to keep the cash flow moving.
The other problem, and a pretty big one at that, is the lack of materials. Not to mention the huge delays in delivery and the sky-high price increases that keep occurring. As such, many smaller SMEs will possibly not be able to continue. Without the materials they just can’t finish projects, so no cash throughput.
To make matters worse, the present lack of skilled labour means that day rates for builders have increased significantly. The work from home trend has also meant that many people are making changes at home, which is becoming a more lucrative way for trades to earn cash than being on a larger development site.
Another factor on the horizon is that money is no longer cheap to borrow. The BoE has jumped from 0.1% to 2.5% to 0.5% with other uplifts expected by year-end. This all factors into the underlying profitability of all companies, including new home builders.
Now Mulbury Homes’ accounts from 2019 and 2020 show wafer-thin profit levels and huge debts mounting up, but unfortunately for a number of similar businesses caught up in the covid cycle, where businesses became heavily disrupted, it is likely that Mulbury could be the first of many to flounder unless the Great Leveller Gove and the new housing minister step up to the plate.
Given Michael Gove’s present hard stance over remediation and fire risk problems, which he is looking to the construction industry to shoulder, it is unclear if extra funding to save small and medium building SMEs will be top of his agenda.
The Guild: Lettings sector will see red tape increase over the next eight years
It seems that from now up until 2030, lettings agents are going to have their hands full dealing with the legislative changes that will be implemented. This is according to Paul Offley, Compliance Officer at The Guild of Property Professionals, who adds that lettings agents need to be aware of the upcoming changes and prepare so that they will be able to provide their landlords and tenants with the best possible advice.
“In April 2022 changes will be implemented for those who need to complete Right to Rent checks on tenants with the Home Office going digital. The temporary measures which allowed Right to Rent checks to be carried out via video call, and by using photocopies or photos of documents will come to an end. This is in line with the Government’s plan to implement a digital system for reviews. As part of the Right to Rent changes, landlords and agents in England will no longer be able check biometric residence cards or permits manually, applicants will need to prove their Right to Rent with a share code, which agents can check online,” he says.
According to Offley, there will be drastic changes within the lettings market in Wales. “In July, Wales sees massive changes as tenancies become occupational contracts and tenants become contract holders. Landlords will need to give their tenants six months’ notice on no-fault evictions, which cannot be served until the first six months of the new tenancy has passed. There are also changes to joint contract holders’ rights, as well as the introduction of succession rights for contract holders, meaning the contract can be passed onto a successor such as the previous occupier’s children, whether they can afford to take over the tenancy or not,” he adds.
Looking at a few key dates in the future, Offley says: “From April 2025 we see the next phase of changes to the Minimum Energy Efficiency Standards (MEES) with a minimum rating of EPC C for all new tenancies. It is expected that the new standard will apply to all tenancies from 2028. Between now and 2030 we will also start to see the impact of the Levelling Up legislation being introduced in England. And then of course we have RoPA.”
He adds, “The Guild is now working with its Members on the implications of all the changes and helping to ensure a smooth implementation and transition. With any change in legislation it always brings some resistance, but the key thing is really ‘don’t panic’ – the saying ‘the devil is in the detail’ really does apply here and this is something The Guild will be working on with its Members over the coming months; helping them understand what is required and what preparations they can start to make now so that it does not have a massive impact on their businesses and their clients. Landlords and agents who are fully prepared for the coming changes will find them easier and they will be in a much better position to assist their clients adapt to the new requirements.”
Andrew Stanton is the founder and CEO of Proptech-PR, a consultancy for Founders of Proptechs looking to grow and exit, using his influence from decades of industry experience. Separately he is a consultant to some of the biggest names in global real estate, advising on sales and acquisitions, market positioning, and operations. He is also the founder and editor of Proptech-X Proptech & Property News, where his insights, connections and detailed analysis and commentary on proptech and real estate are second to none.