Most small- and medium-sized home builders (70%) say market conditions are limiting their appetite to invest in new sites, according to the latest SME Sentiment Survey from the Home Builders Federation’s (HBF).
The quarterly survey, designed to assess the barriers to housing delivery and how they influence business confidence and investment decisions over time, shows the sector remains cautious about the outlook for housing.
Despite the Government’s changes to the planning system and clearly-stated desire to increase housing supply, well under half (41%) of SME builders expect to increase the number of homes they start building in the next three months. Just 28% of respondents reported a positive housing market outlook and 37% said they have a negative view of what’s in store.
Builders delivering up to 75 homes a year are the least optimistic, with almost one third (28%) expecting housing starts to decline in the next three months, and 18% braced for a significant reduction.
When examining factors influencing the cautious industry sentiment, 70% of SME home builders outlined ongoing concerns about scheme viability, affordability and effective demand from homebuyers.
Market pressures continue to be major challenges for the industry as a whole. However, these pressures are particularly acute for SME developers, who, by virtue of their size, are less able to absorb market volatility or manage prolonged delays and rising costs.
Higher deposits, stricter lending criteria and increased interest rates have all impacted access to mortgage finance and made home ownership harder to achieve. Without a strong market to sell in to, home builders’ ability to bring forward new development is constrained, with 24% of respondents identifying market conditions as causing significant caution or delaying site starts altogether.
Ahead of the Spring Statement, HBF submitted proposals for a new Government equity loan scheme, supported by contributions from home builders, to help working households access homeownership. However, no such commitment was made, which HBF has described as a “missed opportunity to boost the market and homeownership prospects across the country”.
Demand-side challenges, combined with rising build costs, additional policy costs and requirements, are making it increasingly difficult for many projects to stack up financially. Reflecting this, 57% of SME builders identified viability pressures as a key barrier to delivery.
The survey’s findings come as the rate of Landfill Tax has doubled ahead of a 500% increase over the course of the Parliament and the introduction later this year of a new £340m annual levy on new homes. The Future Homes Standard is also expected to increase build costs by between 3% and 8%.