A disproportionate squeeze on SMEs

In the 1980s, SMEs were responsible for delivering around 40% of new homes, but the sector has contracted significantly with the number of firms falling by 60% since 1995. Today, SME housebuilders face a fundamental challenge for survival, despite their continued importance to housing delivery. This challenge can be split into two distinct issues: development land and viability, and subdued demand for new homes.

Regional challenges impact SMEs hardest

As highlighted in the latest edition of Land Matters, a report sponsored by the Land, Planning and Development Federation, regional housing markets have been affected differently by weaker market conditions. Where affordability is stretched and buyers face greater financial constraints, new build sales rates are generally lower – with the difference in activity between the North East, London and the South East illustrating this variation. It is the relationship between affordability and sales rates which particularly impacts SMEs.

Smaller firms are especially exposed because they lack the economies of scale and access to land enjoyed by larger housebuilders. They also often need higher margins per unit, meaning their homes typically sell at a higher premium to the local market. Even in less stretched markets, SME sales rates in 2025 were typically 30% to 40% lower than those achieved by larger developers.

This matters because it leaves smaller builders at a disadvantage. Slower sales rates mean reduced cashflow, which hinders a developer’s ability to recycle capital into new land and housing.

Ahead of a long-term trend of land availability or price, 77% of developers in the Q2 2026 Home Builders Federation survey said that planning delays were a major constraint on housebuilding.

According to Savills analysis of Glenigan data, it now takes nearly 12 months between an application and granting of full planning permission in England. Notably, this does not include obtaining outline permission, pre-planning requirements, obtaining access to a site or securing connections to utilities, all of which add further delay and cost.

While extended timeframes are now accepted as additional planning risk, the delays can still present serious disruption, particularly for SMEs who generally operate with far less financial headroom than the larger firms. Development finance lenders are pricing in the potential for planning delays, which tightens access to finance for those reliant on it, making projects harder to stack up and creating issues for SME housebuilders looking to fund projects.

Development capacity severely challenged

There are 3.6 million plots in the UK planning pipeline. Large housebuilders have the biggest share of the pipeline at 30%. The remainder of the pipeline is controlled by parties with a range of different goals and stakeholders, including strategic land promotors and developers, and SME housebuilders.

While fulfilling different roles and functions, these smaller organisations are integral to the delivery of new homes, including taking sites from very early stages of planning and ensuring a diverse mix of new homes is delivered at the end of the development process.

Although the size of the sector has declined over recent decades, SME housebuilders still constitute around 10% of the development pipeline. Further planning disruption, of a kind that disproportionately affects SMEs, will therefore have a material and negative effect on current housing delivery, and make increasing delivery in the future all the more challenging.

To break this cycle there are several routes open to government which would address both issues, with measures to improve site viability, cashflow and increase demand for new housing.

• Expand the National Housing Bank’s lending products for SMEs and provide up-front infrastructure funding to ease the cashflow and viability pressures holding sites back. Wider measures, such as development corporations, should also be considered.
• As outlined in our recent The Case for Demand Support report, an equity loan scheme would benefit first-time buyers. Our analysis found that there are c. 375,000 family households currently living in private rented accommodation who could benefit from such a scheme, supporting up to 85,000 additional new homes by March 2029 and generating nearly £24 billion in GDP. This would particularly benefit SME developers that have seen average weekly sales rates fall to below 0.4 per outlet, a level that threatens the commercial viability of housebuilding. To this end, we welcome the government announcing its new equity loan scheme – Your First Move – ahead of next month’s Budget.
• Allow greater flexibility on Section 106 agreements, including cascade mechanisms, wider acceptance of Discounted Market Sale as a tenure, and temporary grant funding to part-fund obligations, to unlock stalled sites and bring affordable homes forward.
• Confirm the first funding allocations under the 2026-36 Social and Affordable Homes Programme as soon as possible, enabling Registered Providers to ramp up development of social and affordable tenures. This counter-cyclical model would maintain construction capacity despite the current weakness in the sales market, and would align with Andy Burnham’s aspiration to see a boost to social housing delivery.

Without a marked improvement in sales rates, the SME sector – which has already declined sharply over the previous three decades – will continue to operate well below its potential capacity, limiting the contribution SME builders can make to housing delivery and, moreover, national housing targets.

Further information

Contact Emily Williams