‘Urgent and consistent’ policies needed to revive SME housebuilding
The government must fix the ‘overly complex, costly, and slow’ operating environment for small and medium construction companies to unlock housebuilding, according to a new report.
Delivery of new homes could be increased by up to 56 per cent – 100,000 properties a year – if barriers to building are removed, according to the State of Play report 2025/26, a collaboration between Close Brothers Property Finance, the Home Builders Federation (HBF) and Travis Perkins.
“The operating environment for SME home builders… stifles growth and deters new entrants to the market,” Neil Jefferson, chief executive of the Home Builders Federation, said.
“Without real change, SME home builders will remain at a disadvantage, unable to absorb mounting delays and costs, and undermining the Government’s ambition to create a diverse, competitive and resilient housing market,” he said.
The State of Play report found that almost all SMEs – 97 per cent – say tax and regulation will stifle housebuilding in the next year, while 66 per cent reported local or political opposition and 94 per cent cited securing planning permission as a major issue.
Confidence takes a nosedive
Almost nine out of 10 SMEs are less optimistic than they were prior to the General Election, the report found.
Despite Government announcing a package of measures to support SME developers earlier this year, systemic and long-standing issues remain unresolved, including delays in the planning process, support for first-time buyers, skills shortages, and the cumulative burden of regulation.
The number of firms in ‘significant’ distress – a measure of firms nearing bankruptcy – rose 14.6 per cent year on year in the third quarter of 2025, according to Begbies Traynor, while the number of construction firms in critical and significant financial distress topped charts.
“Whilst there are some larger players continuing to grow, many in the SME space are close to the wire and will have to seek restructure, refinance or an exit,” Julie Palmer, managing partner at Begbies Traynor, said.
Construction output fell 0.3 per cent month on month in August, according to the Office for National Statistics (ONS), with the most pronounced decline in repair and maintenance.
Kelly Boorman, National Head of Construction at RSM UK, has warned that the combination of high financial distress in the industry and the government’s housebuilding push puts the sector in a tough place.
“Mandatory housing targets and expectations to commit to large infrastructure projects could result in businesses being unable to meet demand, despite the government’s commitment to investment, training and pipeline visibility,” Boorman said.
More housebuilding change needed
The government announced a package of reforms earlier this year – including measures to free up the planning system – as well as a multi-billion pound boost in investment, although experts say they didn’t go far enough.
“Despite recent Government interventions, the operating environment for SME home builders remains overly complex, costly, and slow,” Jefferson said.
“Tackling longstanding planning bottlenecks – as well as wider issues such as viability, infrastructure delays and rising demand-side pressures – is essential if SMEs are to confidently invest in future land and labour supply,” he added.
Despite the gloom, there are some bright spots, including the Planning & Infrastructure Bill lumbering through Parliament and the prospect of interest cuts on the horizon.
“Despite the challenges SMEs face, there are reasons for cautious optimism in the medium term,” Ben Todd, managing director at Travis Perkins Managed Services, said.
“The Government… has begun to introduce reforms that will directly address SME concerns. If these measures are implemented with urgency and consistency, they could make a genuine difference,” he said.