SMEs could play a huge role in meeting the 1.5 million homes target, yet planning and market forces continue to stand in the way. Stewart Baseley assesses the challenges facing the sector and how the government can address them
The 2025–26 State of Play report from the Home Builders Federation, Close Brothers Property Finance and Travis Perkins arrived at a pivotal moment for the housing sector. As the government pursues its ambition to deliver 1.5 million new homes this parliament and viability has increasingly become a chief concern for industry, the survey of 225 SME homebuilders across England and Scotland paints a sobering picture of what is happening on the ground.
Six years into this series, many of the barriers identified in earlier reports not only persist, but have intensified.
An overwhelming 97% of SME developers now say the 1.5 million homes target is unachievable, and 57% feel less optimistic about their own business prospects than they did in the run-up to last year’s General Election. Only 2% describe themselves as much more optimistic.
SMEs are absolutely key if government is to succeed and meet its housing ambitions. They are long-established, with 71% of respondents having traded for more than a decade, and they specialise in the smaller, locally-led schemes that larger firms are less likely to bring forward, but are crucial to increasing the number of outlets the industry is delivering on and overall housing numbers. Crucially, most say they could significantly increase output if the right conditions were in place.
SMEs more keenly feel the cumulative legislative and financial pressures that are being applied to homebuilding, with the recent report highlighting an operating environment becoming more challenging on multiple fronts.
Planning remains the single greatest barrier to SME growth: 94% of respondents identify delays in securing planning permission and discharging conditions as a major barrier to delivery in the next 12 months, with 89% citing a lack of resources in local planning authority (LPA) departments. These are not new complaints and both issues have topped the list of obstacles to growth since 2021–22 and are consistently identified as the biggest brake on SME output across all regions.
To its credit, the government has moved quickly on planning reform since the 2024 General Election. Mandatory housing targets have been reinstated, the thorny issue of ‘greenbelt’ has been faced, resulting in the introduction of the ‘greybelt’, and a specific package for SME developers was announced in May. Further announcements last month on accelerating development near railways stations and reducing statutory consultees were welcome, while the Planning and Infrastructure Bill should speed up the processing of applications.
Despite these measures, there is a growing frustration that, while policy is moving in the right direction, improvements are not yet being felt on the ground. Many of the most important reforms remain at consultation stage, thresholds have not changed, and the capacity of planning departments continues to lag far behind what is required.
Additional funding of £46million to recruit and train 300 junior planning officers is a step forward, but it remains a drop in the ocean against an estimated shortfall of over 2,200 planners across England and Wales. Meanwhile, proposals to allow LPAs to move to full cost recovery for planning fees risks disproportionately impacting SMEs, which are more likely to submit minor applications.
Planning is not the only pressure. The survey shows that the broader business environment is becoming a major constraint in its own right. Two thirds of SME developers (67%) now see the taxation and regulatory regime as a major barrier to delivery; while 64% identify cumulative viability pressures as a major obstacle to growth. Nine in ten say that the increasing regulatory burden and business taxation levels are affecting the financial viability of projects; more than two thirds say the impact is significant.
Alongside fiscal pressures, the Section 106 Affordable Housing market has emerged as a serious and immediate threat to SME delivery. Nearly six in ten respondents (58%) say difficulties securing bids from Registered Providers (RPs) for S106 affordable units are a major barrier to growth. Freedom of Information analysis suggests around 900 completed S106 affordable homes currently remain unsold, a further 8,500 under construction or due to commence are not under contract with an RP, and more than 700 sites have been delayed or stalled in the last three years because developers could not secure an RP buyer.
Infrastructure and utilities are adding further strain. Almost nine in ten respondents say provision and adoption of utilities and infrastructure are barriers to delivery, with around half describing them as a major barrier.
Layered on top of this is the implementation of biodiversity net gain. A majority of SME developers (55%) now view BNG as a major barrier to delivery, up from 47% last year. Smaller sites often lack the space to deliver BNG onsite, forcing SMEs into a still-developing market for expensive offsite units, which may not be available at the fractional scales they require. The additional administrative burden also weighs heavily on smaller teams.
On the demand side, the lack of a support scheme for first-time buyers for the first time in decades allied with higher interest rates have left many would-be buyers locked out of the market. More than half of SME respondents say the lack of dedicated support for first-time buyers is a major obstacle, with slower sales and tighter affordability criteria feeding directly back into reduced delivery. Development finance, while not the most acute barrier, is becoming more challenging, with the share of SMEs describing it as a major barrier rising from 33% to 39% in just one year, with planning, S106 and sales risks impacting lender behaviour.
Taken together, these findings explain why pessimism among SME homebuilders is rising – and why so many doubt that current housing targets can be met.
When asked which interventions would have the greatest positive impact, SME developers were remarkably consistent. Their top priorities for government are to simplify and reduce the cost of the planning process, increase the availability of small sites through local plans, ease CIL and Section 106 burdens, stimulate demand through renewed support for first-time buyers, and address the Section 106 Affordable Housing market so that viable schemes are not stalled for lack of an RP partner.
The sector is under strain, but not without appetite to grow. SME homebuilders remain resilient and committed to delivering high-quality homes for local communities. They are willing to invest, to innovate, and to support government’s ambitions, but they cannot do so if the cumulative weight of planning delays, regulation, taxation and infrastructure failures continues to fall most heavily on those least able to absorb it.
If ministers move quickly to implement the reforms they have announced, and to address the additional barriers, SME developers could play a much larger role in meeting the country’s housing needs. Without that action, the risk is clear: fewer homes, fewer SMEs, and housing targets that drift ever further out of reach.
This article was first featured in Show House Magazine. Read more like this and the latest industry insight here.
