Mani Khiroya, CEO of Fruition Properties, discusses the acute challenges facing SME housebuilders in London.
Over the past two decades, the number of SME housebuilders in London has fallen by 66% – a decline met with little recognition, let alone intervention in the recent budget.
The old caricature of the ‘greedy developer’ has long lost its footing.
Central to these pressures sits a singular challenge: construction is becoming materially harder, riskier and more expensive than ever. In return, SME developers, who play an essential role in housing supply, particularly on complex infill and brownfield sites, are now operating on a knife-edge with little support.
Rising build costs
Consider a historic 10,300 sq ft Fruition Properties project in Wembley, completed in 2010. The build cost was £114 per sq ft, and nine units delivered a healthy, market-standard 25% profit on sales. Set against this is a site in Edgware, a four-unit, 8,028 sq ft scheme for completion in early 2026. Construction costs have climbed to £228 per sq ft, with expected profit margins dropping closer to 15% on sales.
Once inflation is accounted for, up 63.86% over the period, the picture becomes unmistakeable. Wembley’s £114 per sq ft construction cost becomes £186.80 in today’s terms. Edgeware’s cost base is therefore more than £40 per sq ft (roughly 20%) higher than where inflation alone would place it, despite being a smaller, simpler project. When combined with rising financing, planning and regulatory obligations, the latter’s profit shrinks to barely half of what it would be in real terms, and a far cry from the third that used to be industry standard.
Flat values, slow sales
While costs have surged, sales values have largely stagnated. This is not a call for speculative house price inflation; rather, it underscores the disappearance of the steady, incremental growth that once helped offset rising build costs.
Sales cycles have slowed dramatically too. At one development in Chiswick, early presales moved quickly, but the final, desirable waterside unit took nine months to sell in a stagnant market. At another in Lambeth, eight units sold within six weeks pre-pandemic, while the remaining eight took almost three years to complete in the years that followed.
Construction challenges
The most acute pressure, however, comes from the construction sector and the way its instability has reshaped responsibilities of SME developers. Traditionally, SMEs would appoint a main contractor through tender, attend monthly site meetings, approve valuations, and let the contractor manage its own subcontractors. That system no longer works.
Market-wide cashflow pressures mean subcontractors have less confidence that main contractors will pay on time. Many now insist on direct engagement with the developer, or even direct payment. As a result, SMEs have been drawn into responsibilities never previously envisaged as part of the role: scrutinising and sequencing payments, arranging vesting certificates and advanced payments, coordinating more frequent bank drawdowns, and issuing valuations on a fortnightly rather than monthly basis.
Smaller contractors themselves are operating on a month-to-month cash basis, slowing production and heightening programme risk. With several high-profile failures in recent years (construction accounts for 17% of all UK insolvencies), developer oversight has become essential to keep work progressing.
In this environment, SMEs must now help contractors identify the critical path, maintain cashflow throughout the supply chain and continually monitor performance to avoid production seizing up. What once required a monthly meeting now demands ongoing commercial management, frequent site attendance and near-constant communication. The effect is twofold: delivery now requires deep, hands-on expertise, pushing less experienced SMEs out of the market and pulling experienced SMEs away from the more productive task of sourcing and delivering new sites.
Many developers are increasingly bringing construction in-house. For larger firms with scale and capital, this transition is challenging but manageable. For SMEs, however, the calculation is more complicated: internalising construction means absorbing greater operational and financial risk, while remaining reliant on external contractors means navigating a volatile market.
The trade-off between cost, control and risk has never been more acute. Done correctly, vertical integration allows developers to recover lost margins, exercise tighter control over delivery and strengthen their competitiveness when acquiring sites. Unsurprisingly, funders increasingly appear to favour schemes run by developers with in-house construction capabilities, leaving SMEs that do not adapt at risk of being left behind.
The future
The SME model is close to breaking point. And while some may pivot to other sectors or regions, nimble as ever, London cannot afford to lose them. To deliver the homes the city needs, policy must focus on reducing friction, cutting uncertainty, and incentivising investment.
