Bust and Beyond
Failure is a part of life and business, and I experienced the failure of a business in 2015 that my father had started in 1969. The effect it had on me emotionally was huge, yet the outside world knew nothing. I kept it to myself. I learnt so much from that failure, and it made me determined to support other business owners in the construction industry to avoid failure and flourish.
As I started to speak to business owners about failure, I learnt just how many had suffered from mental health issues and harmful thoughts. This drove me to start my podcast to educate and let people know how to avoid failure and know if they are going through failure, they are not alone, but more importantly, there is life and success after the failure of your business.
Bust and Beyond
E37 Beyond Insolvency: Transforming Construction Payment Culture
When tragedy strikes in the construction industry, it's rarely just business. With the highest insolvency rates of any UK sector, construction failures devastate families, destroy homes, and break marriages. Every working day, two construction workers take their own lives—a rate four times the national average.
Behind these statistics lies a broken payment culture that systematically forces companies into financial distress. After hearing about an electrical subcontractor whose business collapse led to family devastation despite doing quality work and following the rules, Jarvie Moss knew something had to change. That story sparked the creation of Sable, a fintech solution transforming how money flows through construction projects.
Sable's approach combines dedicated project bank accounts with legal trust structures and a revolutionary parallel payment system. Rather than money moving sequentially through the supply chain—creating vulnerability at every step—their system ensures simultaneous payments to all parties. This eliminates the incentive for payment disputes and protects subcontractors when companies higher in the chain experience difficulties.
The conversation extends beyond payment solutions to explore broader industry challenges. With over 90% of construction businesses being SMEs, they face extraordinary pressures from uncertain planning systems, constantly shifting regulations, and high-risk development processes. The dramatic decline in SME developers over recent decades highlights how challenging the environment has become, threatening the diversity and resilience of the housing market.
What becomes clear is that while government policy matters, commercial solutions that align incentives and reward ethical behavior can drive immediate positive change. By protecting cash flow and ensuring fair payment practices, innovations like project bank accounts could help reverse the industry's troubling insolvency statistics and save countless livelihoods.
Ready to explore how project bank accounts could transform your construction project's financial health? Visit sable.co.uk to learn more about this revolutionary approach to secure payments.
Hello and welcome to Bustin' Beyond with your host, robin Hayhurst. In this podcast, robin will introduce guests that have known failure and want to share their story about how they got through it and what happened next. This will make you learn how to see things from a new perspective and avoid making the same mistakes. Please welcome Robin Hayhurst. Please welcome.
Speaker 2:Robin Hayhurst. Hello and welcome to Buston Beyond. I'm joined today by Jarvie Moss. Welcome Morning, robin. So perhaps you could tell us a little bit about yourself. Why are you here? What's your story?
Speaker 3:I'm here because the business that I run was inspired by, and set up to address, the insolvency crisis in the construction sector. I think you know a lot of your guests are people who've been through insolvency personally. That's not me, although I have had it in close family members, but it was a story about an insolvency in the construction sector that first got me hooked on what has now become Sable, which is my business.
Speaker 2:Okay. So that's a brilliant background to have and it's great to set up a company or a business that can actually help people. As you know, my story is kind of out there having gone bust no, there's many factors. Gone bust no, there's many factors. But the important thing about failure is learning from it to find something that avoids that failure in any way. So tell us a little bit more about your business and exactly how it helps.
Speaker 3:Well, as you will be very aware, the construction industry has the highest rate of insolvency of any sector of the economy. I think it's sort of a national scandal that isn't talked about nationally. I think it's sort of a national scandal that isn't talked about nationally. I think people in the sector are aware of it. But even then, actually, when you dig in and you start talking to people who are tangentially related so not people who are actually running SME construction businesses, but people in the wider ecosystem and you explain that not only have we got the highest insolvency rates in the economy, but we also have one in five days off through stress and anxiety. There is two construction workers taking their own lives every working day, which is about four times the national average All of these sorts of statistics that sit around the industry.
Speaker 3:People are very surprised and shocked actually by that and in my view I don't have the data to back this up beyond anecdotal data but a lot of those insolvencies are driven by financial pressure are driven by financial pressure and because so much of the construction sector is SME. So I think it's well up in the high. 90% of all of the businesses in construction are SMEs. That means that you're not just talking about someone losing their job, which in itself is painful and difficult enough to deal with, but you're talking about families losing houses, marriages falling apart, all of that additional pressure that comes from that business being an SME. So our business has been set up to address the payment culture which is very problematic in construction projects. Try to improve that and thereby affect that underlying insolvency rate and, hopefully, the knock-on consequences of that that I've just been describing okay, I really get that.
Speaker 2:I mean, you know, as far as payment's concerned, the problem I see in the industry is there's this adversarial approach to payments and I see people who take delight in knocking payments, not understanding that the other company has got a cash flow issue, has got. You know, this going on, that going on. We don't set up to help each other and I think, you know, if we'd work together a bit better and we started integrating the way we work and the way we pay, it could be so much more useful. You know we have retention. You know I've heard of companies, some house associations, charging 10% retention. Well, it doesn't work, does it? I mean it just does not work. And then often then it's a battle to get that retention at the end of the job anyway. We need some new answers. We need some new ways of handling all this.
Speaker 3:Well, yes, I totally agree. I mean retention. Obviously that's a pretty contentious topic full stop. Even with the existence of retention, a retention at 10% on a business that is probably not making double digit profit margins can be completely crippling. So I hadn't heard it was as bad as that. But I know, even at three or 5%, if you're making three to 5%, very often you're doing pretty well. So you're holding back that profit and delaying payment effectively of the profit until the project finishes, if you know that you're going to get it at all, which is of course not necessarily the case. And I totally agree as well that if the industry was more collaborative then there would be fewer issues and they would be picked up earlier.
Speaker 3:I think this is also true and there are lots of things that I think can be done in that space. You can sign the conflict avoidance pledge. You can take the conflict avoidance classes that go with it. You can try to run your business collaboratively.
Speaker 3:But the difficulty is that if you have competitors who can steal a march on you by running their business in a less ethical way, it's very difficult to compete if all that the client or the person who's buying from you is looking at is the cost. So if you can find a way to bring your cost down, but which means that your business gets run slightly less well, you're going to do that because it will bring the work in and that drives the race. Bring the work in and that drives the race to the bottom on price, drives the race to the bottom on behavior as well. This is my thesis and I will say just caveat all of this by saying I don't come from the construction sector originally. I don't come from finance either. I come from technology. I got interested in this problem because of a story somebody told me, and so everything I say is what I've learned in the past couple of years of talking to people from the sector. So this is an outsider's view of how the construction industry operates.
Speaker 2:I think sometimes an outsider's view is good because you're not bogged down with things that you've kind of been accidentally taught. You know, if you look at, to compete just on price is a mugs game Because at the end of the day if you're the cheapest you'll get all the work but you won't make any money and if you're not the cheapest you'll get no work. So you know, I always say to my clients you can't compete on price, you've got to compete on quality. And that's really really important and it's trying to get through because it's scary. It's scary to go.
Speaker 2:Look, you know, I know I'm going to be more expensive, but there are, there are kind of things that clients looking for in this and I think if you kind of hit those nails on the head, you kind of you, you cover those bases, then you're most probably going to get the job, even if you're more expensive. So you know there's three basic things they're looking for quality, they're looking for budget certainty and they're looking for budget certainty and they're looking for time certainty. And if you can prove through testimonials or by any other means that you're going to hit those three criteria, people will pay more for you.
Speaker 3:Yes, I mean, I fully agree, and I think the thing that seems particularly strange to me is that tenders go out and are decided on price where at least everyone except the client and I assume, occasionally also the client is aware that the price that's been quoted isn't the price that they're going to pay anyway. The job is going to come in more expensive than that because the person who's quoted under cost is going to have to find ways to try to turn a profit on that project anyway. Yeah, I mean, I think this is a fundamental problem. We don't address the quoting and tender process. That's not our business. Our job is to make sure that the money that has been agreed and signed off actually ends up where it's supposed to. So we are very narrowly focused on the payment point of the cycle. We're not involved in valuation, we're not involved in all the contractual wrangling that goes on, and I think there are other solutions and there will be other solutions that are needed to address those problems. But that's not what we're doing. We believe that if we can get the money to flow as it's intended to flow, then many of these other problems disappear, for example, that sort of adversarial, dispute-laden culture that you see, in construction projects.
Speaker 3:One of the factors in that, I believe, is that if I owe you money, robin, and I've used that money to pay somebody else on another project, and now I'm waiting for a third project to pay me so that I can pay you, and that project's late, then the easiest thing for me to do is to say well, you didn't do the job properly, robin, so I'm not going to pay you for it.
Speaker 3:We're in dispute and I can easily do that because the money is coming through me anyway, so I can sit on your cash and your cash that you owe to your suppliers as well. That gives me a lot of leverage in that relationship, which is not healthy. In our model, which I'll talk about in a second, at sable, the customer and the supplier get paid at the same time, so if that supplier is not getting paid, that customer's not getting paid. So if we then take the example that we're just in there, there's no point in me creating a dispute with you, because if I do that, I don't receive my share of the money. So I'm cutting off my nose to spite my face and what's more, because, again, of the way our system works, I can't take your money and use it to pay my bills elsewhere anyway.
Speaker 2:In the first place, okay I get that and I think that there is a lot of positives in that. It's just does it really avoid the the arguments, the problems? I think some of them will go away. We have a strange environment working where sometimes, you know, I've been a subcontractor and a contractor and a developer, so client I suppose and I think sometimes we find it difficult to control. You know, there's a lot of companies out there which aren't that good at what they do and trying to control them and we use money.
Speaker 2:We use money as one of those controls and that's why it becomes quite adversarial. So you're, you know, you've got a subcontractor on site, they're doing whatever for you, but you're meant to have four blokes on site. Well, you've got two blokes because actually they're overstretched, because, let's face it, there's a shortage of people in the industry. How do you make sure that they perform Normally? The only thing is around payment, that's all you've got. Try and do that fairly. I mean it's really important that's done fairly, but if people aren't performing on your site, it costs you money. It really does reflect in that Not understanding your product entirely. If you take any controls around money away, that can be a problem. At the same time, the control we have around money is a problem.
Speaker 3:So it's kind of like you know what's the ideal solution no-transcript up, as you've just described, and in my view they should be separated. So you should have a process of valuation on site where you say this is the work that you've done that is acceptable and high enough quality and this is the agreed value for that work that we're now going to pay you. And once you've agreed that, then that payment should be made. And you should move on to say and the work you've done since that period is substandard. So we're going to agree, some of it's going to be paid now and you need to rectify those problems and we'll pay the rest in the payment after. And we have a process, we have lots of processes. Different sites run differently. I mean that's one of the issues. I think every construction project is unique, but but every, every site will have its own process and every business will have its own process of trying to do that. At the moment, when you decide not to pay, very often you decide not to pay the whole contract amount, even though actually it's only a subset of that. That's the issue. Very often that's because of that dynamic that I just described, that I'm sitting on all of your cash but I don't actually have it because I've used it elsewhere. So perhaps shall I just tell you what we're doing so that it helps. Hopefully, to illuminate this. It might help. Yeah, this is new, although we are built on concepts that the industry some parts of the industry at least are already familiar with.
Speaker 3:Really, for Sable, there are only two real big components of our system. The first is that every project has its own dedicated bank account and that bank account has a legal trust structure that protects the money that's in the account. So it's ring-fenced. That means it can only be used for that project and, crucially, because of the trust structure, the money that is in that bank account is not an asset of any of the businesses in the supply chain until it's actually paid to them. And that means that if someone goes insolvent on that project, the money in that account is not subject to the administration. It still belongs to the project itself effectively, which is obviously important in a world where you've got high insolvency rates.
Speaker 3:The big issue with insolvency in the supply chain is that in the current model the old world, if you like the entire project sum moves through the bank accounts of each of those suppliers on its way to its intended recipient, and it doesn't move very quickly. So even if the client is paying on 30 days, it's probably getting paid on on worse terms. 60, 90, even worse than that is fairly common and that's because those businesses at the top would like that extra cash flow. They get free credit effectively from their suppliers in the supply chain. Now if one of them goes bust as we saw with ISG going bust in September when they go they don't just lose that month's money out of the project, they're sitting on three months' worth of payments to the supply chain and that disappears out of the project entirely, which puts enormous pressure on those supply chain businesses. It means that the client has got to go to refinance effectively to find the money to pay for work that they've already paid for, but that money hasn't reached the intended recipient and you'll be very familiar with all the problems that are associated with that. So in our model the project's funding goes into that dedicated bank account and then it's protected by that legal trust so that any event of insolvency it's safe and it can't be used for other purposes. So that's component number one.
Speaker 3:Component number two is our app, the sable app, which is used by the supply chain to authorize payments to each other from the project's bank account. So the money goes into that bank account and it sits there safe. And then in the supply chain, everyone authorizes payments to each other, exactly as they would do in a world that didn't have us there. Because you are always authorizing payments, you've done your valuation elsewhere and then you effectively go into online banking and you say I'm going to pay you 30 grand this month, and you put 30 grand in and then the payment's made. In our world. You type that 30 grand into Sable or you put it on your phone. We capture your identity and attach it to that authorization. We ask your supplier to do the same. So they say yes, you owe me 30 grand, and if those two numbers match, we know that payment is authorized and it has the identities of those two parties attached to it.
Speaker 3:But then that supplier does the same for their suppliers.
Speaker 3:So they've now got 30 grand's worth of authority that they've been given by their customer.
Speaker 3:They can pay on 10 grand each to two suppliers.
Speaker 3:Out of that, both of those suppliers say yes, you owe me 10 grand, and once that's done, we know that of that 30 grand, 10 grand is due to the customer in the middle, if you like, and then 10 grand to each of those suppliers beneath, and we can make that calculation all the way down the supply chain and then we can release the funds in parallel and pay everybody at the same time so they all get paid in the same payment window, so a few days before the final payment due date in the contract, from that dedicated bank account and by keeping the flow of authority the same as it is today, but just looking after the cash elsewhere. That then means that everyone on site and in the back office teams and the finance teams and everybody else the valuation, the QSs, everybody can carry on doing their job exactly the same as they always did, because the same processes are effectively are in place. The only thing that's changed is the cash isn't moving like it used to. It's now moving in parallel, where before it's moving in series.
Speaker 2:I totally get that so I take the client puts what the whole amount for the project in or just a monthly amount but it's up to the client.
Speaker 3:Generally, it would be the payment that's been agreed for that period, particularly in the private sector. What you don't want to do if you're a private sector developer is borrow and draw down your entire loan and start paying interest on it at the start. So the crucial thing, though, is that if there is a lending bank in place for example that lending bank those drawdowns go straight into the project's account from that bank. They don't have to go through the client separately and then get pushed into that account, and that protects the supply chain as well from the client misbehaving, which does also happen, believe it or not. Not all clients are well behaved, okay.
Speaker 2:Well, yeah, I've come across a few of those, so who's actually using this out there then?
Speaker 3:Well, it's now march of 2025, just in case this is being listened to in later by anybody next year next year, whenever it comes out.
Speaker 3:our system went live in january last year. We were building it. This year we're going to market. We have a couple of residential projects in london that are market. We have a couple of residential projects in London that are using this. We have a couple of housing associations and we have two pilots with the Environment Agency. We've got a bunch of other things coming along. As a technology startup founder, one of the things that's very frustrating about construction is the speed at which construction projects move, because in technology obviously everything happens pretty much immediately and in construction almost nothing happens immediately. But we've got a lot of stuff coming and what we're trying to do is cover private and public sector and we're trying to cover all scales of project to prove that what we do is functional and works across everything from. When I say all scales, I mean we're not talking kitchen extensions and loft conversions, we're talking commercial construction really.
Speaker 2:Yeah, so you're looking at the B2B region of construction. So, yeah, I totally get that. So I mean that sounds like a fantastic system. I can see a few kind of hiccups, but I'm sure you'll get over those as you come along to them. You told it was a story that started you thinking about doing this. What was the story?
Speaker 3:It's not a very nice story, but there are lots of those, unfortunately, in construction. I was trying to work out what I was going to do next after we sold my previous technology business and I wanted to do something that I felt was going to make the world better, and I started actually looking at renewable energy. I thought I could do something in the renewable energy space and, through talking to people who worked in renewables, I started meeting people who worked in construction, because they're building wind farms and solar farms and so forth, and one of them also built houses and he had an electrical subcontractor based down in the southeast who worked on his family business, for I think he was in his 50s, so he's probably owned and run his business for 30 odd years. Both sons worked in the business. His wife did the books you know classic SME and he was looking at a legacy and how he was going to leave his business. His sons are thriving, growing business, and so they agreed that they would go from they were a sort of light commercial and domestic electrical firm that they would scale up and do more commercial work. So they took on more employees, more people, scaled up to about 20 people and won a contract on a big landmark development in London which is very easy to see from anywhere in London. It's a supply and fit contract.
Speaker 3:They did all the work, everything absolutely fine, and then someone above them in the supply chain went bust before they'd been paid for the work that they'd done and as a consequence of that, because they were principal people, they paid their suppliers and they went bust themselves. They paid their suppliers and they went bust themselves. They went into insolvency. And the impact that that had on this family was absolutely profound. He lost the house, marriage dissolved, one of the sons actually tried to take his own life and fortunately didn't succeed, but just a totally profound negative impact. And I heard that story and it really affected me emotionally, of course, because it's just such a horrible story, and I felt that sense of injustice that he'd done nothing wrong. They'd just done everything they were supposed to and this was the horrible consequence of doing the right thing. But I also thought, well, if that was my project and I was the developer there, I don't want a really good subbie going bust and disappearing. That's not in my interest. I want them there finishing that job, working on the next job.
Speaker 3:So I got really interested in the problem. Through that, I learned, first of all, how profound and how common this is, which we've talked about already, and then I learned that we've actually got a sort of a solution to it. So the thing I talked about earlier, the way that our system works, the idea of a separate bank account for the project with a legal trust wrapped around it that's not my idea, it's not our idea. That's called a project bank account. That's not my idea, it's not our idea, that's called a project bank account. And they're used occasionally in the public sector, and in some bits of the public sector they're used an awful lot.
Speaker 3:National highways exclusively use project bank accounts to pay for all works on highways, and I thought, oh well, that's interesting.
Speaker 3:But so here's this solution that should solve the problem. So why does the problem still exist? And so then I began to dig into the real reasons why project bank accounts haven't been very widely adopted, why they're difficult for construction companies actually to operate within, and so on, and I realized that there was an opportunity to bring in the technology from your Starlings and your Monzo's, the neobanks and fintech stuff that's been going on, and apply it to that concept of the project bank account to deliver something which does what a project bank account was intended to do, but that it never really did when it was originally done. In an analog way, and once I'd kind of worked all of that out, I knew that this was definitely the thing that I was going to do next, because, succeed or fail, you know, there's no, I don't have any control over that but if it does work, then we will change lives for the better for tens of thousands of people who are working families in this country, and that was what I was looking for.
Speaker 2:Yeah, no, I totally get that and that is a sad story and unfortunately it's a very common story in the industry and we see a lot of companies do that and you know there's some basic rules around that as well. If you have one client that's over 25% of your work, you've got a problem. So I see that a lot People grow very, very quickly on the back of one client or one connection. Then they can't kind of if something happens or either they lose the work or they don't get paid or something it's too much to to actually survive. So the kind of rule of thumb is 25 ideally. You know even less than that, because then you can have a chance to actually ride it out. I think it'll take a while for project bank accounts to take off and people need to work out what to do in the meantime, because that's going to be very much with clients, not with contractors and subcontractors. It's really kind of understanding.
Speaker 2:Scaling is what I come across a lot of people in the industry, obviously, because it's what I teach and you have two types of people. You have ones that have sorted out their pipeline, they've got the word of mouth out there, they have an eye on quality. They're producing stuff and their problem is coping with the amount of work and they haven't got scalable systems. So that becomes really problematic for them. And then you've got those that can't find work. Now, not all of those are have got a massive problem, but some just don't understand quality and there's very little I can do about that, very little. You know, if you really haven't got life quality and quality doesn't come first for you, it's difficult to instill that in someone. And some have got the quality side but they just haven't really worked out how to kind of market it. But yeah, so there's lots of failure in the industry because growth can be quite easy. It's easy to go from, particularly in residential sites we're not talking about the, the kind of b2b kind of things, but the residential sites. You can go from doing extensions 100 grand to building whole, whole houses a million, and you know it's very easy to grow. Um, but people haven't been taught how to grow or prepared for that.
Speaker 2:So the story you tell me, you know I'm guessing that that was a really big project for them. It was massive. It's most probably one of the only ones they had on and by losing that money they were dead to the world really. I mean, there's nothing that could save them, and kind of that was part of my story as well, that we ended up in that situation. So you know I absolutely do to understand it and how difficult it is, but I like the idea of project bank accounts. I think it sounds like, you know, quite a good good thing. And I think when we failed my company failed I had to put myself in a situation where the client at the time had to pay the subcontractors because they would have gone bust otherwise and we had to do things which I perhaps wouldn't have done otherwise to make sure that happens, to prioritize that. But it did happen. So we managed to get everyone paid as much as we could, enough at least there's no other failures. That was quite important.
Speaker 3:Yeah, I mean, if only everybody thought like that, it would certainly help. If you're using a parallel payment account, as I've described, that supply chain can carry on in the full knowledge that they will definitely be paid. They will have been being paid at the same time as the top contractor anyway all the way through the project. So they're not. They shouldn't be sitting on big cash flow risk and that's the example. I think the example I've just talked about that company were paying their suppliers in good faith, pushing their own cash reserves down in the expectation that the company above them was going to behave in something like the same way and pay them to them. And of course, when that company goes bust, the money to pay them is gone and it's nobody else's problem. That's the issue, I think, currently.
Speaker 3:So in the model that I've described, the money is effectively going from, as I say, if there's a private sector currently. So, in the model that I've described, the money is effectively going from, as I say, if there's a private sector, it's going from the lending bank through the project, directly to those subcontractors. So in the eventuality that, say, you lose the main contractor at the top of the supply chain, you're probably going to have to bring someone in on a management contract basis to finish the project off. But that's a lot easier to do if all of those subcontractors are still on site. All of the warranties still apply and actually the client may well have to step in for a month or two, authorize payments through, but the work can continue on site.
Speaker 3:And for a client that's critical Because as soon as everything grinds to a halt, halt, you're just watching the cost of the project spiral and there's only one way that you're going to be able to deal with that and that's you're going to have to go and get more money from somewhere else. So you know, everybody in the supply chain actually is incentivized not to behave in the way that they currently behave if you take away the option to behave in the way they currently behave. But as soon as that option's on the table, you're strongly incentivized to take it yeah, no, I, I again, I get that.
Speaker 2:I mean I've seen particularly house associations but other professional clients, you know, act very unreasonably. And after covid, where we had a 200% increase in timber prices, you know these companies, these clients you know were getting timber put into their buildings which was costing twice what it was and some of them just went. Well, you know fixed price. You've got to have a bit of flexibility around that because you can't expect that and it's often put into contracts now because of that. But I saw quite a few good family main contractors actually go bust in that period because their clients just went. Well, you know fixed price, we're not paying any more, rather than sitting down around the table with them and going actually you know it's going to pay us With a main contract going down and the reverberation that goes on down the supply track chain. Other companies often go with them and it's not a good thing.
Speaker 2:And when you think particularly HAs, who are government funded, a lot of the money comes from government. They should have a more open approach to it and often they don't. I'm going to be a little bit controversial here, but I find some of them and I've worked with quite a few, just some of them, not all of you know with quite a few, just some of them, all of them a bit power hungry. It's not their money. They've got money but it's not their money and they don't really know, they're not very ethical in my mind about how they spend that money. So the same time, I've worked with house associations which are amazing that they're thinking beyond. You know, next year they're thinking about getting their supply chain, you know, in with them, working with them, investing in them, and that's what I think you know aha should be doing, particularly what's happening at the moment where the governments are talking about one and a half million pound, one and a half million homes in the next five years.
Speaker 2:By the way, that's not going to happen, but they're moving towards it and they're also they've got in everything they do, the current government. They have a little caveat, a little kind of strapline, and what they're actually saying is they want to build one half million affordable homes. So I'm not against that, I don't think it's possible. But if you're going to make that happen, then everyone in the supply chain, that money coming into the supply chain for those needs to be invested in a different way so that we can actually build companies out of it and help new people come into the, into the industry, because the moment to work with an ha is a really difficult thing. There's often frameworks, there's loads of things to get over and we need to make it easier. And we need to kind of easier and we need to kind of get smaller developers kind of producing for the country, these houses, because the big boys they want a bit of cope.
Speaker 3:No, you're absolutely right. I've been fairly recently to some social housing and affordable housing conferences as well and been talking to register providers and housing associations and I think one of the big problems I think that they're facing is well, I mean, it's almost a perfect storm in a way. There are a number of big macroeconomic issues. So, as you say, costs have spiraled. Labour and material costs are high. Brexit helped push up the labour costs, all sorts of problems with the global supply chain since COVID, and that hasn't really been fixed, so those materials prices have soared as well. So you've got high costs.
Speaker 3:And then you've got an issue that we've released a load of new legislation, new building regulations.
Speaker 3:There's problems, particularly with damp and mold, insulation, things like that that that they have to retrofit onto their existing stock, and housing associations have finite budgets. So if they have to retrofit and sort out their existing stock and that's going to cost them enormous sums, which the amounts of money involved are eye-watering the only real pot that they can take from in order to do that is their building of new stock. So there's a lot of pressure on housing associations at the moment to build new houses, exactly as you said, but at the same time, they need to take the money that they'd allocated for building those new houses and they need to use it to bring up to code the existing stock. And the new houses are going to cost so much more and the existing stocks are going to cost so much more because the materials cost and the labor costs are high. So I think they're really caught and I don't think a lot of them know what they should be doing about it. I think they're really stuck.
Speaker 2:I don't think it's quite like that the way I see it. Yes, they have got a problem with retrofitting and, you know, going back on these properties and the cost of that. But the pot for building new, new homes comes essentially comes from the government directly against that project and the rest is actually often borrowed. So they, they have a you know they have, they are able to borrow money as well, and the government basically top up the difference between what makes it viable so what they buy at and what makes it viable, so it can be £20,000 a plot, it could be £60,000 a plot.
Speaker 2:They've got to make the case. They often don't get development. Some of the bigger ones do a lot of it but they don't always get it. They don't get about product. They don't get about product, they don't get about costs. I've seen houses that should actually buy sites without working out at all what they're going to put on it, because they can get the money quite easily. So I think it's slightly different to the way you explained, but they have got a problem. I totally agree. They have got a problem, problem and they need to start addressing that.
Speaker 3:You may well be right there. Of course I don't claim any expertise in that sector. I'm kind of parroting back to the message that I got from those conferences.
Speaker 2:Yeah.
Speaker 3:And it was loud and clear that that's how they feel that there's been a lot of additional requirements placed, I'm sure they do Remember, on land generally they're competing with developers.
Speaker 2:So lot of additional requirements placed, I'm sure they do remember, on land generally they're competing with developers. So you know what can they buy it at and what can they top it up at. Developers will, under the new kind of 106s and uh etc. They will produce a lot of affordable homes themselves, particularly the percentages as required. Now buzzer can develop.
Speaker 2:The other day, and really between that and the new environmental tax and the biodiversity tax and other taxes, the value of the land was so low that it most probably wouldn't be of interest to the landowner to sell it and we've overtaxed it. We really have. There has to be To be an entrepreneur, you've got to make profit and that profit has to be equal to risk. At the moment what we've got is we've got a situation with planning where not only does planning take forever, it's not a certain thing. So you can have a site which should go and should happen and should move forward, and then it doesn't. You've also got to invest in that site. So you've got to invest all your surveys and your new surveys and ground surveys and all that before you get plan permission. You can't do it afterwards so you can have a site for, say, 10 units and you can be invested 100 grand and then not get plan permission. Well, small SMEs, they can't do that many times. They most probably can't do that once. So I think that's one of the biggest hurdles at the moment is that risk.
Speaker 2:We've always said, I think, in the industry, and I've always said, definitely, we want a simple, certain planning system. So it's got to be quick, it's got to be certain and it's got to be simple. And we never have got that and governments keep promising it and never have. And we're also against people you know the NIMBYs of this world who don't like change. And I say NIMBYs I don't mean to insult people who don't want change, because I know there's a real fear in them. I've come across many, many, many, many sites where we've had lots of opposition and generally the opposition is very high and people are very passionate about it. And I'm an evil person for wanting to build next door to them, but honestly, two years after we finished, what we've built is an asset to the area and people feel completely different about it. But it's that fear, that original fear of change, and I see that a lot.
Speaker 2:I live in a village and we try and change things in the village, trying to get a village shop the other the other year, and there's a very passionate small group who really didn't want it to happen. So it hasn't happened yet. But a village shop, you know, it's an asset to the village. The village is about to expand quite a bit. We've got some development going on, so you get into that as well.
Speaker 2:So it's a really difficult time out there for developers generally and that kind of will also add to the stress and problems with house associations. But remember, they can take more risk. Plus, the planning system is for them. They can take exception sites we'll call exception sites, which is where you wouldn't normally get planning. But if you can show a need for affordable, you will get planning. So you know, you they've got kind of more strings to their, their bow that they can pull on really to get there. But yeah, I mean there's so much wrong with the planning system at the moment, there's so much wrong with the industry at the moment and if we're not careful, if we don't start supporting our SMEs, you'll have three or four companies, you can buy your house off and that'll be that.
Speaker 3:Yes, you're right. There's a couple of things I think I've picked up on there. I have very little knowledge of the planning system and I'll be completely honest about that, so I can't comment on that, um, thank god. But I do speak to a lot of developers and I do speak to a lot of specialist lenders and the feedback there is that it's exactly as you said. There are very few viable sites. So there's quite a lot of capital that's waiting to be deployed but because sites don't stack up, they aren't getting developed and that's because the costs are too high. Both the cost of land is too high, but then all of the costs all the way through the project are too high to make that project viable and get a sensible return, as you say, for the risk that you're taking. So I totally agree with that.
Speaker 3:I think that's a real fundamental problem and it suggests that somewhere the market is broken. And my personal belief is that the job of government is to stay out of markets as much as possible and intervene only if it's clear that a market is broken and then to intervene in the lightest such way that they can. But there is clearly a problem in the residential development market. It's self-evident. I think that that's the case and some of that may lay probably not one problem, it's probably multiple.
Speaker 3:Planning is clearly part of that suite of problems that they face. So I think hopefully we'll see change for the better. But I mean, most people seem to be fairly sceptical and actually quite a lot of people with the planning system say if we just left it so that at least you know it isn't going to change every 18 months, then we can work within those confines. You know, if you know what the constraints are, you can work within them. But if the goalposts keep shifting all the time, it's very difficult to plan. When development projects often have quite a long payback period, it takes time for the for them to pay back anyway.
Speaker 2:I don't know if that's uh, if you've encountered I mean, yeah, there's certainly here there's a lot of problems with industry. I sat on two committees for the Department of Community and Local Government advising the Conservative government on how to build more houses, and after three years of sitting there and a couple of autumn statements which is where they announced what they're going to do I suddenly realised they weren't actually listening, they were just having us there, because then they said they had spoken to industry and we came up with some really good stuff, some really good ideas of how to get more houses built. And yes, land values are very high but risk is very high as well. And actually land values aren't dictated by land owners. They're dictated by the property market. And you know, if you've got some land, you're going to sell it if the value is high enough for you to feel that that's beneficial to you. If it's not high enough, you're going to keep hold of it. And the trouble with having a transient let's call it transient government, because I don't think Labour will get in again somehow is that people are going to go. I'll leave it until the next government gets in, because they might change things back or they might improve things for me, because land is a long-term opportunity. I think that's part of the problem as well. So it's a fantastic industry. Love it, love creating fantastic buildings and houses.
Speaker 2:We've built, I think, court homes, built over a thousand, well over a thousand homes in its lifetime. And I had a phone call with someone the other day who phoned me up and only found out my father had died. So he died in 2021. So she must have been a bit slow to find out, but she's quite upset by his passing and said that she was on her fourth or fifth courtthouse house. They bought the first one and then they always bought courthomes after that in the local area, which I thought was really nice. So you know, smes, I think, have got a big part to play in sorting out.
Speaker 2:But until you know and I understand about light touch with government, but government are causing a lot of these problems.
Speaker 2:You know the government are causing the problems. They need to be part of the solution and they need to think about how they're going to support SME house builders, because it's a real challenge and one of the things I'm doing that you know this is kind of to support this is specifically to support SME house builders is we're taking in a program called Rise Up. We are taking contractors who understand the build process and we're teaching them how to be developers. So you've got people that understand the difficult bit how to build and we're teaching them the other bit, which is how to develop, and we're hoping to have many new developers come out of that, because the amount of SME developers is dramatically cut. I don't know what the figures are, but you know it's gone from you know 100,000 down to tens of thousands, if that maybe less than 10,000 SME developers, and the figures I had were back in the early 2000s, so I must try and update those. But it's hugely less.
Speaker 3:Well, yes, I mean, it's reflective of how challenging that market is. I think as simple as that, isn't it? I think that the issue I find a lot of the time, you know, you go to round tables and you hear panels and everyone's talking about the construction sector. There's a lot of talking about the problem. We've been talking about the problems a lot and you don't often hear people talking about solutions, or certainly not as often as you could. There's a lot of sort of complaining and moaning, and I think it's justified, but we need to look as an industry for solutions to those problems.
Speaker 3:And again, my personal view is that the government definitely has a role to play, legislation has a role to play, but you have to be very careful with legislation and regulation, because the voices that influence the decisions around legislation and regulation are usually those from large companies at the top end of the market, and in an industry that is so heavily reliant on SMEs, you end up with regulation that favors the status quo for those big companies and doesn't protect those SMEs that are so important.
Speaker 3:So, personally, I think anything you can do that gives a commercial edge to projects that behave better and deliver better outcomes. If it gives a commercial edge, then it will be adopted. It may take time, but people are doing this because they're trying to make a living and they want to make a better living than they're currently making. So if you can show them that there's a way role for the industry itself in educating and informing itself about the different ways that they can approach things like risk and working out better ways of contracting with each other these things don't need the government. People can do that within the industry if they have the will. The challenge, I think, is that if your business is on fire, then all you can really focus on is trying to put the fires out, and that doesn't allow you to step back and look at the bigger picture of what might be good for you longer term, because you just need to deal with what's on right now.
Speaker 2:Well, to put us put in a simple way. We don't tend to have time to work on the business, we just work in it and we get drawn to working in the business and I find that's a very common thing and, um, I mean, that's why I think it's really advantageous. You know to sing my own kind of trumpet or play my own trumpet. You know to work with someone like me gives you time to look at your business from a different perspective and I I work with lots of companies that do exactly that. They step back and they spend the time with me looking at their business and working on changing it. And I think the industry does need to change. I think the industry has got a lot of say in what can happen to it and people like the Federation of Master Builders who are out there championing the industry, are really good. But government's also got a lot to say in it and there's ways they can support SMEs.
Speaker 2:Sometimes and I went to a meeting around basically it was people look at the industry and they see us as hairy-ass builders and it was trying to change that. But the problem was the panel or the group that was there. I think it was about 30, there's only two SME builders. Everyone wants a big one. So they wanted showers on site, they wanted people to arrive in one set of clothes and work and then change and all the things that would never happen in real life in an SME site. And then they wanted government to legislate that, at which point I kind of lost it a little bit, because we've got enough red tape and there was no advantage to SMEs in that at all. It was completely against them. So you're absolutely right, people who have the clout at that level often represent a completely different part of the industry. So that's true. Well, it's been really good having you on. It's been a really interesting conversation. So if anyone wants to know more about your system, where would they go to find out?
Speaker 3:about it. Just pop to our website. It's sablecouk and Sable is spelled S-A-I-B-L-E Sablecouk.
Speaker 2:Okay, brilliant, so they can do that and have a look and hopefully we'll see it have an impact on the industry pretty soon.
Speaker 3:Let's hope so, fingers crossed. Okay see it have an impact on the industry pretty soon.
Speaker 1:Let's hope so fingers crossed. Okay, thanks for coming. Thanks a lot, robin. Okay, thanks for listening to bust and beyond with robin hayhurst.