{"id":514733,"date":"2025-03-17T12:38:05","date_gmt":"2025-03-17T12:38:05","guid":{"rendered":"https:\/\/www.constructionnews.co.uk\/?p=514733"},"modified":"2025-03-17T12:38:05","modified_gmt":"2025-03-17T12:38:05","slug":"mind-the-gap-are-things-looking-up-for-sme-housebuilders","status":"publish","type":"post","link":"https:\/\/www.constructionnews.co.uk\/sections\/long-reads\/features\/mind-the-gap-are-things-looking-up-for-sme-housebuilders-17-03-2025\/","title":{"rendered":"Mind the gap: Are things looking up for SME housebuilders?"},"content":{"rendered":"

In a difficult housebuilding market, SMEs appear to be struggling much more than volume builders. CN explores what can be done to support smaller firms<\/strong><\/em><\/p>\n

It is no exaggeration to say that the contribution made to housing delivery in the UK by SMEs has collapsed in recent decades. According to a paper from Parliament\u2019s Built Environment Committee published in 2022, in 1988 SME builders built 39 per cent of new homes. By 2020 the figure had dropped 10 per cent.<\/p>\n

\u201cWhile the industry as a whole has grown in recent years, housing delivery has increasingly relied on a smaller number of large developers,\u201d the document says. \u201cThe number of SME housebuilders has approximately halved since 2007; many have been acquired by larger builders over the years or ceased operations.\u201d<\/p>\n

It\u2019s a trend that Rico Wojtulewicz, head of policy and market insight at the National Federation of Builders, has been observing uneasily for years.<\/p>\n

\u201cThe problem is the increasing complexity of housing delivery. The big boys can overcome it because they\u2019ve got the capacity\u201d<\/p>\n

Steve Turner, Home Builders Federation<\/h4>\n<\/blockquote>\n

\u201cWe\u2019ve seen more companies decide to cut their cloth accordingly, whether that be reducing the number of projects they put forward, reducing the number of staff members they employ or just shrinking as organisations,\u201d he says. \u201cSome people are leaving the sector entirely.\u201d<\/p>\n

The housebuilding industry as a whole is facing challenging times. Material price rises and new regulations have made delivering homes more difficult, while interest rate rises and the end of Help to Buy in March 2023 have weakened sales. Many of these challenges are significantly tougher for SMEs to weather. So what could the government do to improve the situation?<\/p>\n

Planning<\/h3>\n

In a survey published at the end of 2024 by the Home Builders Federation and Travis Perkins, 51 per cent of SMEs reported waiting over a year to obtain planning permission. At the same time, 56 per cent of respondents reported a 30 per cent uplift in the cost of obtaining planning permission on the previous year. Indeed, for the fifth consecutive year \u2013 as long as the SME survey has been running \u2013 respondents cited planning as the main obstacle to delivery, with delays in the system and under-resourced local authority teams referenced by 94 and 90 per cent respectively.<\/p>\n

Of course, developers of all sizes complain about the planning system, especially since savage cuts made to local planning authorities (LPAs) in the years of austerity cuts following the 2010 general election. For large housebuilders, the situation is no doubt highly irritating, but they have numerous projects on the go at any one time, so can depend on revenue from sales on live projects while other projects await planning permission. The same cannot be said for SMEs. \u201cThe problem is the increasing complexity of housing delivery,\u201d says Steve Turner, executive director at the HBF. \u201cThe big boys can overcome it because they\u2019ve got the capacity. But for small builders it has become increasingly challenging. Small builders just can\u2019t manage with the level of cost and delay.\u201d<\/p>\n

\u201cWhile we welcome and support the measures contained in the revised NPPF\u2026 we believe that the government could have been more ambitious\u201d<\/p>\n

Paul Rickard, Pocket Living<\/h4>\n<\/blockquote>\n

The government\u2019s efforts to tackle planning backlogs tend to take a holistic view of the problem, rather than targeting support towards SMEs. For instance, it announced last summer that it will recruit and train an additional 300 planners in the public sector. \u201cThat\u2019s nowhere near enough, but it\u2019s a recognition that the lack of capacity within [local authority planning] departments is a major barrier to increasing housing output,\u201d says Turner.<\/p>\n

In December, the government also set out plans to delegate decision making for all but strategic applications to planning officers. Under the proposals, applications that comply with local development plans could bypass planning committees entirely. It also proposed the creation of targeted committees for strategic development and mandatory training for planning committee members.<\/p>\n

\u201cBy empowering qualified planners to implement planning policies, locally elected councillors will have the time to focus on the more significant cases, effectively speeding up the planning process and reducing unnecessary delays,\u201d says Victoria Hills, chief executive of the Royal Town Planning Institute.<\/p>\n

Eleanor Deeley, joint managing director at SME developer Deeley Group, says the changes could prove transformative. \u201cIf you have a housing site allocated and you\u2019re delivering policy-compliant affordable housing, you shouldn\u2019t need to go to committee,\u201d she says. \u201cWe have the issue where we are recommended for approval by the planners and then we get turned down at committee because local people don\u2019t want more new houses.\u201d<\/p>\n

She adds: \u201cIt would be beneficial to our growth if things do go through that delegated route. If there\u2019s more certainty about how quickly our planning applications can be determined and more certainty that they will be determined positively, that makes it more likely that we\u2019ll expand because we\u2019d be spending less on appeals.\u201d<\/p>\n

Housing association finances<\/h3>\n

Aside from planning delays, many housing associations\u2019 finances are in a dire state. Housing associations are the main buyers of affordable homes delivered through Section 106 agreements between developers and LPAs. But in the past couple of years, it has been difficult for housebuilders to find a buyer for the affordable element of their schemes. In the HBF survey of SMEs, 80 per cent of respondents said this issue is a barrier to growth.<\/p>\n

\u201cIf you\u2019re an SME builder, in most cases securing development finance is reliant upon signing a contract [with a registered provider] for the Section 106 homes, because it gives the bank a level of certainty that they are going to get a return on that investment,\u201d says Turner. \u201cLarger developers are able to start on site because they are better able to access finance.\u201d<\/p>\n

And SMEs have more to lose when they can\u2019t build out a site. \u201cObviously, the bigger companies have got more sites operating. For SMEs, if you can\u2019t start a [building] site, you\u2019ve invested all
\nthe money in the land and planning permission and can\u2019t get any return on investment,\u201d Turner says.<\/p>\n

When it comes to shoring up housing association finances, the government has been all but silent. \u201c[The government] needs to somehow find a way to ensure that housing associations are able to purchase [houses through] Section 106 agreements by putting them on a sound financial footing,\u201d says Turner. \u201cBut that would require funding and there are funding pressures across government.\u201d<\/p>\n

Deeley agrees. \u201cEveryone is waiting for the spring Spending Review, but realistically the housing associations that we\u2019re talking to are saying, \u2018by the time [the money] gets to us it will be October, so we can\u2019t commit until the back end of next year\u2019,\u201d she says.<\/p>\n

The NPPF<\/h3>\n

One source of hope for embattled SME housebuilders is the revised National Planning Policy Framework (NPPF), which was published at the end of last year after months of consultation. Out of 243 clauses, one specifically mentions SMEs. It encourages LPAs to promote the development of small and medium sized sites, including accommodating at least 10 per cent of their housing requirements on sites smaller than one hectare. The guidance remained unchanged since the last version.<\/p>\n

Many in the housing industry find much to welcome in the document, although some feel that the government has not gone far enough in terms of measures to support the allocation of small sites or SMEs.<\/p>\n

\u201cWhile we welcome and support the measures contained within the revised NPPF, including continued obligations for small and medium-sized sites to meet a minimum of 10 per cent of a local authority\u2019s housing requirement, which does benefit SME developers, we believe that the government could have been more ambitious,\u201d says Paul Rickard, managing director at London-focused SME developer Pocket Living,<\/p>\n

Elle Cass, head of strategic built environment growth at SLR Consulting, is more bullish about the new guidelines. \u201cIt\u2019s good to see smaller sites being championed as well, and by extension the SME housebuilders that will deliver them,\u201d she says. \u201cThese housebuilders will play a crucial role in building the homes we need as a nation and have been long overlooked since many of them went out of business in the 2008 global financial crisis.\u201d<\/p>\n

Brian Berry, chief executive of the Federation of Master Builders, takes an opposing view. \u201cThe one thing that\u2019s really upset my micro members is that they\u2019ve frozen the 10 per cent allocation in the local plans for small sites,\u201d he says. \u201cOne of the things that comes out strongly is the lack of availability of land for our members to build on. They need smaller sites.\u201d<\/p>\n

The NPPF also encourages building on low-quality greenbelt land \u2013 which the government calls the \u2018greybelt\u2019.<\/p>\n

Phil Hooper, chief executive of Close Brothers Property Finance, wrote in the HBF survey that freeing up greybelt land could present opportunities for SMEs to build on \u201csmaller pockets of land that are typically overlooked by Plc housebuilders.\u201d<\/p>\n

Rickard adds that the revised NPPF was a missed opportunity to think more creatively. \u201c[The government could have created] a permission in principle regime for the development of small brownfield sites. That would deliver more homes, more quickly, while supporting SME homebuilders,\u201d he says.<\/p>\n

Moreover, he says the government could have introduced rules requiring that a certain percentage of permissions go to SMEs. \u201cIt needs to be target driven,\u201d he says. \u201cThat would start to reverse the decline because if it is measured, it happens.\u201d<\/p>\n

So while SMEs support a lot of the measures the new government is bringing forward, most believe they will benefit the larger players more. More targeted support is needed to prevent the SME sector from declining yet further.<\/p>\n

\n

The role of Homes England<\/h3>\n

While Homes England, the government\u2019s housing and regeneration quango, enjoys broad support from the housing industry, there are concerns that some recently announced initiatives, indicate a bias towards volume housebuilders. Rickard says: \u201cI think Homes England is a good organisation and does a lot of good work \u2013 we\u2019ve certainly had a very good working relationship with them. But I think they do need increased flexibilities and tools from government to be able to offer more targeted support to SMEs.\u201d<\/p>\n

MADE Partnership<\/strong><\/p>\n

In September last year, Barratt Developments, one of the biggest housebuilders in the UK, entered into a joint venture with Homes England and Lloyds Banking Group to create MADE Partnership, which will act as master developer on large sites. MADE is intended to be a long-term partnership, initially backed by combined equity funding of up to \u00a3150m provided equally by the partners.<\/p>\n

\u201cMADE Partnership will provide a master developer platform with the ambition and capability crucial for creating not just the homes but the vibrant, diverse places England needs,\u201d says Peter Denton, chief executive of Homes England. Whether it\u2019s transforming
\na brownfield site, extending an existing town, or creating a whole new village, the partnership will have the finance, tools, expertise and partners required to ensure a cohesive approach to delivering a fabulous place that people want to live and work.\u201d<\/p>\n

HABIKO<\/strong><\/p>\n

Launched in November 2024, Habiko is a \u00a354m joint venture between Pension Insurance Corporation, Muse and Homes England that plans to deliver 3,000 low-carbon, low-energy affordable homes for the rental market by unlocking institutional investment. The idea is that the partnership will become self-funding over its 12-year lifespan.<\/p>\n

Homes England says Habiko is targeting up to 100 per cent affordable housing on its sites, with rents set at 20 per cent below the local market rent. PIC will have the ability to continue to forward fund the development of the homes and will ultimately own the homes and places they have helped to create through its investment.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

In a difficult housebuilding market, SMEs appear to be struggling much more than volume builders. CN explores what can be done to support smaller firms It is no exaggeration to say that the contribution made to housing delivery in the UK by SMEs has collapsed in recent decades. According to a paper from Parliament\u2019s Built …<\/p>\n","protected":false},"author":51440,"featured_media":515216,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ep_exclude_from_search":false},"categories":[79553,559],"tags":[],"yoast_head":"\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\t\n\t\n\t\n