70% of SME builders say current market conditions are reducing appetite to start new sites, while one in four expect to reduce land purchases, according to the new research from the Home Builders Federation.
The HBF’s SME Sentiment Survey show that the majority (70%) of SMEs say that market conditions are limiting their appetite to invest in new sites, with developers in London the most pessimistic.
The new quarterly survey, designed to assess the barriers to housing delivery and how they influence business confidence and investment decisions over time, shows the sector remains cautious about the outlook for the housing market.
Despite the government’s changes to the planning system and clearly stated desire to increase housing supply, just 41% of SME builders expect to increase the number of homes they start building in the next three months. 28% of respondents reported a positive housing market outlook, and 37% have a negative view of what’s in store.
Builders delivering up to 75 homes a year are the least optimistic, with 28% expecting housing starts to decline in the next three months, and 18% braced for a significant reduction.
The HBF says that SME builders have ongoing concerns about scheme viability, affordability and effective demand from homebuyers, and that, while market pressures continue to be major challenges for the industry as a whole, these pressures are particularly acute for SMEs, who are less able to absorb market volatility or manage prolonged delays and rising costs.
The organisation also notes that higher deposits, stricter lending criteria and increased interest rates have all impacted access to mortgage finance and made homeownership harder to achieve. Without a strong market to sell into, home builders’ ability to bring forward new development is constrained, with 24% of respondents identifying market conditions as causing significant caution or delaying site starts altogether.
Ahead of the Spring Statement, the HBF submitted proposals for a new government equity loan scheme, supported by contributions from home builders, to help working households access homeownership. However, no-such commitment was made, which the HBF says represented a missed opportunity to boost the market and homeownership prospects across the country.
Housing market sentiment varies significantly across regions. London reported the weakest outlook, with 57% of SME developers expressing a negative view and just 14% reporting a positive outlook.
The South West (52% negative) and South East (51% negative) also showed notably subdued sentiment. Similarly, the East of England records a higher share of negative (44%) than positive (22%) responses. In contrast, Wales stands out as the most optimistic region for small firms, with two-thirds (67%) of developers reporting a positive outlook and only 17% expressing a negative view.
The report found that demand-side challenges combined with rising build costs, additional policy costs and requirements are making it increasingly difficult for many projects to stack up financially. Reflecting this, 57% of SME builders identified viability pressures as a key barrier to delivery.
The survey’s findings come as the industry prepares for a doubling in the rate of Landfill Tax ahead of a 500% increase over the course of the Parliament and the introduction later this year of a new £340million per year levy on new homes. The industry is also preparing for the introduction of the Future Homes Standard, which is expected to increase build costs by between 3% and 8%.
The HBF is calling for a moratorium on new regulatory costs, taxes and levies on the industry, and for a comprehensive review of cost increases imposed by various government departments in recent years following a period of extensive tax and policy cost increases imposed by Defra (BNG), Treasury (Residential Property Developer Tax, Landfill Tax) and MHCLG (Building Safety Levy, Future Homes Standard).
Elsewhere, despite industry support for recent reforms, the planning process continues to present a major obstacle to delivery. More than three quarters of respondents (76%) identified planning delays as one of their top three supply-side barriers to building more homes.
The research also suggests emerging pressure on the future housing pipeline with more than one in four SME developers (27%) expecting to reduce land acquisitions in the next three months, citing both cost and availability as key issues. The HBF says that the reduction in land buying could have long-term implications for housing supply if market conditions do not improve.
Neil Jefferson, chief executive at the Home Builders Federation, said: “Small and medium home builders play a vital role in a healthy housing market and in increasing housing supply. However, they are also the ones most impacted by the ongoing market conditions, lack of demand, and rising taxes and policy costs. While planning changes have been positive much more is needed to address the concerns of SMEs to enable them to play their part in delivering more homes.”
“Policymakers must recognise the impact of rising taxes, levies and policy costs on the viability of new housing schemes. At the same time, the lack of support for first-time buyers continues to constrain demand. With strong public backing for a new equity loan scheme for first-time buyers, there is an opportunity to explore targeted measures that help buyers while supporting delivery.”
“Without further action on both viability and affordability, the Government’s housing ambitions will become increasingly difficult to realise.”
