Planning obstacles, land purchase challenges and financial pressures are inhibiting growth for smaller housebuilding firms, experts have warned.
Without changes to planning laws and improved financing in the sector, SME housebuilders will be unable to increase their market share as the sector gears up to build 1.5 million homes by 2029, according to research by the London School of Economics (LSE).
The study found that SMEs – which account for around 10 per cent of all new homes built in the UK – have been “held back by an environment that offers up too many barriers for growth”.
“SME housebuilders are equipped with unique skills and local expertise, with many wanting to expand their businesses,” said Christine Whitehead, LSE emeritus professor of housing economics and one of the report’s authors.
“But to leverage their impact on the market they must overcome barriers,many of which disproportionately impact smaller house builders compared to larger developers,” she added.
The report, commissioned by the Federation for Master Builders (FMB) and released yesterday evening (16th December), was based on a survey of 61 respondents.
It described planning constraints as “the major barrier to growth”, adding that SMEs are struggling with high costs and limited access to finance for larger projects.
The latter problem leaves a large proportion of firms depending on their own assets for work, limiting how many sites they can work on at one time.
And the report added that high upfront costs, together with “limited borrowing options, delays and uncertainties”, leave many SMEs unable to scale up operations.
“Changing the system would ideally include government backed low interest loans, greater support for apprentices and reduced planning fees for smaller builders,” the LSE academics concluded.
Their study also found that local plans, set by councils in England and Wales, often “seem to limit development and opportunities” as the number of smaller sites earmarked for development has been falling consistently since 2016.
Overall allocations of sites of less than 100 units in the UK are the lowest in Europe, according to the findings, leading to a “considerable disadvantage” for SME builders.
But the report found most of the problems are “seen to be more about process than principle”. The LSE team concluded most of the delays and inconsistencies are due to a lack of resources in the local authorities.
The survey respondents also warned environmental and heritage regulations are expensive. This has led to a “tension between preserving local character and enabling viable development”.
That tension, the report found, is “further complicated” by new environmental sustainability and energy efficiency standards, which some survey respondents said are not consistent with heritage laws. An example was councils prohibiting the installation of double glazed windows – which reduce heat loss – in conservation areas.
Respondents also flagged the costs behind the Community Infrastructure Levy and self-build land designations, which they said “impose significant costs and restrict development potential” for SME builders.
The report follows a warning on 6 December by the think tank Centre for Cities that the government was on course to fall short of its 1.5 million target for new builds by the next general election.
