It also highlights the impact rising interest rates have had on smaller home building businesses and comes amidst a broader collapse in housebuilding. 

For the fourth consecutive year, the top two major barriers to growth for SME developers are chronic delays in the planning system and under-resourced Local Authority planning departments.

Both factors have severely impeded SME’s ability to deliver much-needed housing stock and have been compounded by rapidly increasing associated costs.

The report shows that 46% of SME home builders saw an increase of over 30% in the costs of obtaining planning permission over the past three years.

This was before local authorities in England hiked planning application fees by as much as 35% from 6th December 2023. 

Another major hindrance to SME home builders has been interest rate rises, cited by 72% as a major barrier.

On a more optimistic note, the number of SMEs citing the supply and/or costs of building materials as a major barrier to growth dropped significantly in the past year, from 79% to 42%.

Global supply chains have largely recovered following the Covid-19 pandemic and war in Ukraine.

The cost and supply of labour is similarly perceived by fewer SMEs as a major barrier to growth than last year (41%, down from 64%), suggesting a softening in the labour market. 

SMEs are also paving the way forward for sustainable housebuilding.

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Nearly two thirds (64%) of SMEs are building homes which include sustainable technologies and features that go beyond the requirements of building regulations; with over 60% including photovoltaic panels, air/ground source heat pumps, high performance double glazed or triple glazed windows and preservation/protection of wildlife and nature.

Rowland Thomas, managing director at Close Brothers, commented: “Navigating an under-resourced planning system continues to present the greatest challenge to SMEs, who unlike larger housebuilders aren’t in a position to direct capital into new projects when there are delays.

“To make matters worse, there are now increased planning application fees to contend with. One would hope that the extra revenue these generate will be used to boost resources, but as the money won’t be ringfenced there is sadly no guarantee.”

“The major change in the fiscal environment has also been a blow to the sector.

“Consecutive interest rate rises have not only impacted construction and labour costs, but also stifled mortgage liquidity and buyer demand. 

“Thankfully rates appear to have reached their peak in the current cycle and there is growing confidence that rate cuts may be as soon as Q2 this year.

“It is also very encouraging to see SMEs leading the charge in sustainable development, yet another compelling reason to ensure we support more of these businesses and remove the obstacles for growth.”