In conversation with Allison Homes' John Anderson

Finding growth in a challenging market

We mentioned the challenging state of the UK housing market above as the context of Allison Homes’ growth. The combined pressures of land shortages, difficulty in obtaining planning permission, and funding concerns (in the private and public domain alike) have put the new homes sector under great station.

The strain is sufficient that some national housebuilders are merging to join forces and weather these problems with their combined.

When outlined in numbers, the market situation is stark. So, given the overall difficulty the sector faces, how does a notional SME builder like Allison Homes post such significant growth over a relatively short period?

Their first advantage is the conditions of their business ownership and assets. The Allison Homes’ business, a “mom and pop” operation according to John, was acquired by management with the backing of a multi-national private equity house back in late 2021.  

Allison Homes enjoys a considerable untapped land bank, freeing them from having to procure new land for building.

“Allison Homes is fortunate to have access to such a strong land bank”, said John. “Aside from being well-financed and having that great land bank, we have invested heavily in our people, processes and operations. Our people will be at the heart of our success.

“When we bought the business in 2021, it was a family-run regional builder, without the necessary capital, people or systems to scale and grow. 2024 is the year we will start to see the fruits of our investment in modernising our business. The organisation has a solid blend of agility with good operational controls and none of the typical ‘PLC’ rigidity and silos.

“I’m immensely proud of what the team has achieved over a relatively short period of time and in challenging market conditions. When we bought the businesses back in 2021, no one would have predicted multiple PMs, fourteen rate rises, 11% inflation, a collapse in affordability not helped by government uncertainty with the fifteenth housing minister since 2010.”

John highlights three areas that typically constrain growth in the market. “Politics, land, and money – we have land, and we have backers, only leaving politics.” Later in this article, we go into John’s opinions on the current political situation for new homes, focusing for now on the role of SMEs in the market.

That’s not to say it’s all been smooth sailing to growth for Allison Homes, especially not since the now infamous 2022 mini-budget. The effects of the 2022 crisis have forced Allison Homes to refocus its business to focus more on partnerships.

“Soon after the mini-budget, we pivoted towards partnerships, perhaps quicker with more agility than most other builders could shift,” John explained. “We forward-sold a lot of the schemes we were originally planning to sell on the open market, which helped our cash generation and eased our open market risk while proving greater predictability of output.

An example of Allison Homes’ work in partnerships is their recent work with Legal & General, delivering affordable and shared ownership homes. Read more about that partnership here.

“Although there was an inevitability that rates would have to increase, the mini-budget acted as an accelerant driving interest rates high more quickly."

What becomes of the SME builder in the new market?

Allison Homes has posted enviable growth in tough market conditions, but that still leaves the fate of the rest of the SME market to discuss.

With even national housebuilding firms joining forces (pending approval), what does the future hold for the SME sector? We asked John.

He highlights the sustainability and scalability of a business as core components for success but laments the state of the SME market, an area he considers valuable to new home creation. 
“Dominance of the large companies is unnerving”, John said. “Their dominance in the land market, dominance in the procurement of materials, of capital and so on.

"If you combine the turnover of the bottom 38 of the top 50 housebuilders, their total would still be less than Barratt and Redrow put together – it’s shocking, the way the sector has polarised.”

Driving home the severity of the situation, John said, “Debt cost is through the roof, sales revenue is down significantly compared to the long-term norm and, and [SME builders] are nervous. And their banks are nervous, too. If you’re an investor [in an SME], you have a choice - invest more equity to maintain enterprise value or shrink.

"There are no other palatable options. There’s a lot of nervous business owners who can’t see how they will get through the next two or three years.”

John sees some of the effects of this polarised skew of the market being semi-permanent, saying, “Good SMEs will always survive, but their ability to scale will be diminished. The organic growth, requiring people, investment, land, won’t be there, but companies backed by private finance will have a fighting chance.”

That’s not to say there’s no hope for businesses that can scale and remain sustainable while keeping core values alive, according to John. “There are opportunities for those who survive, there is still a massive shortage of good quality housing of all tenures a macroeconomic foundation stone," John said. “The subtlety of the question is how to make sure you’re better than everybody else. Better people, better processes, a sharper and more agile business. The cornerstone of all that is trust between employees, partners, and the communities in which we work.”

While businesses themselves have their role to play, there’s the political role we mentioned earlier – one that John predicts will change under (most likely), an incoming Labour government. “If, or when, Labour get in, they will have to make changes”, said John. “The key question is how you survive until the next government’s policy changes bear fruit.

“Labour has said in the first 100 days in office they’ll bring back the five-year land supply and ease planning logs, but that will still take time.” More on that last part later.

It’s not all doom, and John predicts improvement for SMEs in the future, saying, “If you can survive 18 months, there will be a good market. I believe there will be a future for companies that can chisel out good quality land. Smaller companies will, however, need to access good quality finance.”

John also speculates that there will also be consolidation in the SME home builder marketplace. Allison is on the acquisition trail, looking to acquire good home-building businesses to scale its geography according to John, saying, “One of the things you’ll see of the next eighteen months is companies like ours acquiring other home builders. Genuinely good companies, who need the sustainability and certainty of being part of an organisation like us.”

He also indicates that this pattern will likely play out for other builders, including nationals, who will be looking for quality SME builders to join their books. “Those massive cash piles [national housebuilders] are sitting on earn them very little money,” John said. “So, acquisitions are the obvious way to diversify that cash, it’s the only worthwhile thing they can do with that money.”

The political situation

There is, according to John, a purpose to Allison Homes’ work beyond the needs of finance. Allison Homes is, in John’s words, “Trying to help solve the housing crisis.”

At multiple points during our interview, John took time to agonise over the human consequences of the UK’s failure to keep housing supply in keeping with demand. The scale of the crisis unfolding, in numbers, does make for a harrowing read.

“Reports say that 4.2 million people need social housing,” John said. “One in six children in school in England is living in temporary accommodation, and by 2030, 150,000 children will be homeless or living in emergency accommodation.”

With these numbers in mind, along with the knowledge that we’ll likely navigate 2025 under the leadership of a new government, our conversation turned to the political landscape in the UK when it comes to housing – and what, if anything, John would have a new government do about it.

He highlights three areas in need of change. The first is a change of direction from the government. “The government needs to be bold and accelerate housing delivery, and current policies cede too much control to the NIMBY.”

Second, is greater freedom for Homes England to provide grant funding to any home builder who can evidence a need. “Give Homes England the mandate to be able to issue affordable housing grants to any housebuilder willing to build a house,” John said. “Not just registered providers.

“I would introduce the principle that house building is a necessary national infrastructure and give the decision for every scheme over 50 homes to an independent body rather than continue to suffer the political blindness that currently exists.

“When I started in this industry, it was easy to establish the principle of building homes. You drew a red line around an area of a map, the local authority would say yes in principle or no and based on that in-principle decision, you could move forward with a greater degree of certainty than now. Today, there is absolutely no certainty even if you have an allocation”

The third would be funding. “I would prime fund local authorities to build more homes, give them the bandwidth and resources to build more,” he said.

The above said, John expressed his wariness of just how much we can expect from Labour inside a single term, putting much of the problem down to unpicking planning issues. “To have an impact inside of one parliament, we would effectively have to start digging now,” he said. “The policies and the building energy will happen quickly, but it will take years to have an effect.”

The financial situation that the new government will inherit also can’t be ignored. “If, or when, Labour get in, it won’t be easy for them to fund local organisations to go and build more houses,” John said. “One potential option would be for the public sector to harness long-term patient capital managed by pension funds to bridge the funding gap. That would be private money, as opposed to public money, which offers pensions a great return on investment by making long-term investments in housing.”

Underlining what’s at stake, John said, “If we don’t build more houses it will drag this country’s productivity and the economy even further down.”