Small and medium-sized enterprise (SME) homebuilders are being priced out of the market by rising costs and long planning delays on small sites, according to a report from the Home Builders Federation (HBF) and Quantum Development Finance, with analysis from Lichfields.
The research found that in 2024, only 17,000 homes were approved on small sites of three to nine units, compared to an average of 35,000 in previous years.
The share of planning permissions granted on sites of 150 units or fewer fell from nearly 20% in 2008 to between 6% and 8% today.
The report also showed 94% of small site applications missed the statutory deadline, with average times from application to committee decision at 30 weeks and a further 21 weeks to secure formal permission.
Applications decided at committee took 53 weeks on average, 10 weeks longer than delegated decisions.
13% of sites took more than two years for permission, and five schemes took over three years.
Across several cities, average planning fees and obligations for small sites came in at about £2m per site.
Section 106 agreements were a major factor in causing delays, with 76% of local authorities reporting average negotiation times over 12 months.
Delays in responses from statutory consultees added to the problem.
The increase in planning fees in December 2023 was meant to help local planning authorities process applications more quickly.
However, 80% of authorities were still running below full staffing, and 24% said fees were still not enough to cover costs.
87% used extra income to support planning, but it was not enough to meet demand.
98% reported problems putting Biodiversity Net Gain rules in place, and 94% said these rules caused delays.
The Building Safety Levy, due from autumn 2026, is expected to add thousands of pounds extra per home.
The HM Treasury Landfill Tax consultation could see waste rates rise by 3000%, which could mean about £15,000 extra per home, or over £50,000 in some cases.
A lack of demand for Section 106 affordable housing from registered providers delayed 8,500 units.
Nutrient neutrality rules were also blocking some schemes.
The Planning and Infrastructure Bill is expected to allow authorities to fully recover application costs through even higher fees.
The Ministry of Housing, Communities and Local Government (MHCLG) admitted this could hit SMEs harder by raising the cost of minor applications.
The Government’s recent policies, like exempting developments of 49 homes or fewer from the Building Safety Levy, have been welcomed.
However, the HBF said more support was needed, especially to speed up planning.
The federation called on the Government to increase the number of planners, set standard infrastructure requirements and templates for Section 106 agreements, and give certainty on planning fee levels.
It also said performance should be closely monitored.
Neil Jefferson, CEO at the HBF, said: “SME home builders play an invaluable role in delivering homes for the UK, helping to train the workforce and boosting local economies.
“With a large proportion of the homes that SMEs build falling within the small site category, the findings from this report show that as a group they are in real danger of not just being unable to deliver homes but being unable to stay in business.
“While Government wants to assist SMEs, the barriers our members are facing is substantial, and needs intervention to reverse the trends of declining small site approvals we are seeing.”
Jefferson added: “If we are to deliver new housing at the levels Government is aspiring to, it is critical that developments and businesses of all sizes are supported and that SMEs are given the opportunity to grow.”
Oliver Thompson, CEO at Quantum, said: “SME housebuilders are vital to the health of the UK housing market, yet for many of the businesses we work with, the journey from acquiring a site to delivering new homes has never been more difficult or uncertain.
“This report highlights the implications of the current planning process and illustrates that the system now demands a level of financial resilience that disadvantages SME housebuilders.
“While we welcome the Government’s recent steps toward reform, the pace of change must accelerate.”
Thompson added: “If we’re serious about fixing the housing crisis, we must fix the system and ensure SME housebuilders are supported.”
