The stretched planning system remains the biggest barrier to building for SME housebuilders, according to the latest State of Play report.
The survey by Close Brothers Property Finance, the Home Builders Federation (HBF) and Travis Perkins, released today (January 22), reveals that 93% of SMEs cite delays in obtaining planning permission as a major obstacle to growth. Meanwhile, 91% state that local authority planning departments are under-resourced, hampering SMEs’ growth. This is the fourth consecutive year of the survey in which these two elements have been the top two barriers.
And 46% of SME housebuilders report an increase of more than 30% over the past three years in the costs of obtaining planning permission. The authors noted that this was before December’s planning fee rises were introduced.
Meanwhile, only 13% of SME respondents believe the government’s current approach to housing and planning is helpful to first time buyers, down from 39% in 2022.
Rising interest rates are also identified as a significant block to increasing SME housing delivery, with 72% citing the issue. The report notes that the Bank of England’s 14 consecutive rate hikes “hit the sector particularly hard”, with higher borrowing costs and the impact on buyer demand.
The survey - the UK’s most comprehensive of SME housebuilders – launches amidst what seems to be a wider collapse in housebuilding, with all indicators pointing downwards for housing supply. Revisions to the National Planning Policy Framework (NPPF) also confirm the removal of mandatory housing targets, which 80% of survey participants say would be a hurdle to growth as more local authorities would likely withdraw their local plans, adding to the 60 that have already done so.
The report also points to the four years of uncertainty that nutrient neutrality stipulations have caused SMEs, delaying the delivery of around 150,000 new homes “despite the negligible impact on river quality their occupation would have”.
But more positively, the number of SMEs naming the supply and/or costs of building materials as a major growth barrier fell notably to 42%, from 2022’s 79%. And 41% now cite the cost and supply of labour as a barrier to delivery, down on the previous year’s 64%.
The survey’s results also reveal SMEs’ innovation with sustainable building. According to the survey, three fifths of respondents are delivering homes which feature technologies and other elements that are currently above Building Regulation requirements. More than 60% are adding photovoltaic panels, air/ground source heat pumps, double glazed or triple glazed windows and are protecting wildlife and nature.
State of Play: Challenges and Opportunities Facing SME Home Builders 2023-24 highlights the key challenges and opportunities facing the industry. The survey received 305 responses, achieving a 92% completion rate which was a 40% increase on 2022 “and the highest level of engagement the survey has achieved to date”.
Rowland Thomas, md of Close Brothers Property Finance, said: “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.”
Stewart Baseley, HBF’s executive chairman, commented: “The housebuilding 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.”
