96% of SME housebuilders are hesitant to invest in new developments due to the current market conditions, according to new research by the Home Builders Federation and Quantum Development Finance.
The latest quarterly survey, which assesses barriers to housing delivery and their impact on investment decisions, found that 61% of SMEs expect to start construction on fewer homes over the next three months, up from 52% last quarter and more than double the 29% recorded at the beginning of the year.
This is already being seen in expectations of land purchasing, as 58% of respondents expect to purchase less land over the next three months, more than double the 27% reported at the start of the year.
The HBF says that the findings show a significant lack of confidence in the current policy agenda to improve conditions for SMEs, with 95% of respondents stating that they are either not very confident or not at all confident that the government will deliver meaningful improvements for the sector.
The research demonstrates the continued supply and demand-side pressures facing the industry. Development viability was the most cited supply constraint, named by 84% of respondents, as new taxes, levies and inflation have added around £76,000 to the cost of building each new home. Planning delays were the next most frequently cited issue at 72%.
On the demand side, wider housing market conditions (69%) and low buyer confidence (64%) continue to present the greatest challenges, while mortgage rates have become an increasingly prominent concern cited by 41% as lenders have repriced mortgage products in response to anticipated Bank of England base rate rises.
Despite the challenging outlook, the survey suggests that there is some hope that targeted measures to stimulate demand could help support housing delivery. 75% of respondents said that interventions such as the proposed Your First Home scheme and/or Stamp Duty Land Tax reform could encourage them to plan additional site starts. A further 18% said such measures could help bring forward sites already in their development pipeline, meaning 93% believe demand-side stimulus could positively influence their development plans.
The HBF is urging the government to reduce the cumulative cost of building new homes, removing fiscal barriers to development, unlocking Section 106 Affordable Housing delivery and providing greater long-term funding for local planning authorities to strengthen planning capacity.
Improving access to homeownership and stimulating buyer demand could help unlock new development, but without action to address viability pressures, planning delays and rising costs, the HBF says that SME housebuilders will continue to face significant barriers to increasing housing supply.
Neil Jefferson, Chief Executive of the Home Builders Federation, said: “Small and medium-sized home builders are finding it increasingly difficult to operate as both the cost and burden of building each home continue to rise. In real terms, this means fewer homes being built as the cumulative impact of rising costs, planning delays and uncertainty makes it increasingly difficult for smaller developers to bring sites forward.”
“As we look to the Budget announcement, the government has a real opportunity to stimulate housing delivery by addressing these pressures and building on progress in planning reforms and homeownership support by tackling both the viability and affordability challenges facing the sector.”
“To restore confidence, smaller developers need targeted action that enables them to continue operating in an increasingly difficult market. SME’s play a vital part in delivering new housing, and supporting them to overcome these barriers is essential to ensuring the country can build the homes it needs.”
Oliver Thompson, Chief Executive of Quantum Development Finance, said: “Our survey shows SME builders are caught between rising costs and falling buyer demand, and the wider market tells the same story. With two-year fixed mortgage rates now close to 6% and a rate rise widely expected next month, buyers are holding back, and home builders can’t commit to new sites without confidence that homes will sell.”
“From where we sit as a lender, viable schemes are being delayed not for lack of ambition, but for lack of certainty. Home builders are clear that getting buyers moving is a significant part of the answer: three-quarters would plan additional site starts if first-time buyer support or Stamp Duty reform came forward. The Budget must deliver a well-designed Your First Home scheme alongside action on costs, or the homes this country needs simply won’t get built.”
