As a general election looms, 90% are unhappy with Government’s approach to planning and housing.

The overburdened planning system is putting SME home builders under enormous strain, a new report published today reveals. It also highlights the impact rising interest rates have had on smaller home building businesses and comes amidst a broader collapse in home building.

The survey, the UK’s most comprehensive survey of SME home builders, carried out by the Home Builders Federation (HBF), Close Brothers Property Finance and Travis Perkins plc, shows:

• 93% of SMEs cite delays in securing planning permission as a major barrier to growth.
• Nine out of 10 (91%) say planning departments in local authorities are under-resourced, which is hindering growth of SME home builders.
• 46% of SME developers say the cost of obtaining planning permission has risen by over 30% in the past three years – even before December’s planning fee rises were introduced.
• Almost three-quarters (72%) claim interest rate rises have been a major obstacle in the past year.
• Just 13% think the Government’s current approach on housing and planning was positive for first time buyers (down from 39% in 2022).

For the fourth consecutive year, the top two major barriers to growth for SME developers are chronic delays in the planning system and under-resourced Local Authority planning departments. Both factors have severely impeded SME’s ability to deliver much-needed housing stock and have been compounded by rapidly increasing associated costs. The report shows that 46% of SME home builders saw an increase of over 30% in the costs of obtaining planning permission over the past three years. This was before local authorities in England hiked planning application fees by as much as 35% from 6th December 2023.

Another major hindrance to SME home builders has been interest rate rises, cited by 72% as a major barrier. The Bank of England’s 14 consecutive rate hikes have hit the sector particularly hard. Not only have home builders had to contend with higher borrowing costs themselves, but demand for new homes has dropped substantially as many buyers have been forced to reconsider how much they can afford to borrow, or in some cases put off buying a home altogether.

The report comes as all indicators point towards a sharp fall in housing supply amidst an increasingly challenging policy and economic environment. Proposals to abolish mandatory housing targets were confirmed by the Government before Christmas, a decision that 80% of survey respondents said would be a barrier to growth as, it will likely lead to more Local Authorities withdrawing their Local Plans (over 60 have already done so) and further delay and confusion for all parties.

SME home builders have also faced more than four years of uncertainty over the nutrient neutrality issue that is currently holding up around 150,000 desperately needed new homes despite the negligible impact on river quality their occupation would have; whilst demand remains constrained as a result of high interest rates and the lack of a government support scheme for first time buyers.

On a more optimistic note, the number of SMEs citing the supply and/or costs of building materials as a major barrier to growth dropped significantly in the past year, from 79% to 42%. Global supply chains have largely recovered following the Covid-19 pandemic and war in Ukraine.

The cost and supply of labour is similarly perceived by fewer SMEs as a major barrier to growth than last year (41%, down from 64%), suggesting a softening in the labour market.

SMEs are also paving the way forward for sustainable housebuilding. Nearly two thirds (64%) of SMEs are building homes which include sustainable technologies and features that go beyond the requirements of building regulations; with over 60% including photovoltaic panels, air/ground source heat pumps, high performance double glazed or triple glazed windows and preservation/protection of wildlife and nature.

Stewart Baseley, Executive Chairman of the Home Builders Federation says: “The house building industry faces some major barriers to delivery and all indicators now show sharp falls in supply. SMEs in particular are unable to manage the delays caused by the collapsing of the planning system and the lack of capacity in planning departments.

"The increasingly onerous policy and regulatory environment has seen the number of SME builders plummet in recent years, and we urgently need to see a reversal of the anti-development approach by Government or more companies will disappear.

"SMEs are vital to the industry’s ability to deliver the homes we need and play a vital role in training and communities across the country.”

Rowland Thomas, Managing Director, Close Brothers Property Finance, comments: “Navigating an under-resourced planning system continues to present the greatest challenge to SMEs, who unlike larger housebuilders aren’t in a position to direct capital into new projects when there are delays. To make matters worse, there are now increased planning application fees to contend with. One would hope that the extra revenue these generate will be used to boost resources, but as the money won’t be ringfenced there is sadly no guarantee.”

“The major change in the fiscal environment has also been a blow to the sector. Consecutive interest rate rises have not only impacted construction and labour costs, but also stifled mortgage liquidity and buyer demand. Thankfully rates appear to have reached their peak in the current cycle and there is growing confidence that rate cuts may be as soon as Q2 this year.

"It is also very encouraging to see SMEs leading the charge in sustainable development, yet another compelling reason to ensure we support more of these businesses and remove the obstacles for growth.”

James Mackenzie, Managing Director, Travis Perkins, says: “One positive from the last year is that supply chain constraints have largely eased, something that is reflected in the survey, with 42% of SME homebuilders citing ‘Supply and cost of materials’ as a major barrier to growth, down considerably from 79% in the previous iteration of the report.

"A key objective of ours as a materials supply partner is to deliver best-in-class products and bespoke services to meet the needs of our customers. This can help to ensure that SME homebuilders not only survive the current difficult market conditions, but go on to thrive as they deliver quality homes and tackle Britain’s housing shortage.”

Read the 2023/24 State of Play: Challenges and Opportunities Facing SME Home Builders report.