There has been a sharp deterioration in confidence among small and medium-sized (SME) housebuilders, with expectations for land purchasing, housing starts and housing market conditions all weakening significantly, according to the Home Builders Federation’s (HBF) second quarterly SME Developer Sentiment Survey, in partnership with Quantum Development Finance. The survey tracks changes in SME housebuilder confidence – those building up to 500 homes – and the barriers preventing them from expanding.
Over nine in 10 of SME home builders said the Iran conflict had made their business outlook for the next 12 months worse than expected, with just 1% disagreeing. Over a quarter said concerns arising from the conflict had led their business to reconsider or pause the acquisition of new development sites.
The Iran conflict has also exposed how fragile the operating environment for SME developers already was – with viability, planning and buyer confidence all under strain well before the current uncertainty took hold. The challenge is especially acute for SME developers, as they have a limited ability to continue absorbing rising costs, planning delays and weaker demand.
The impact is reflected across all key housing delivery indicators, with nearly half (49%) of SME developers expecting to reduce land purchasing activity over the next three months, compared with just 18% who expect to increase it.
Expectations for housing starts have also weakened considerably, as almost all respondents (94%) said market conditions are causing caution when considering new site starts, up from 70% in the previous survey. Nearly half (48%) said conditions are causing significant caution or delaying starts altogether, while a further 45% reported moderate caution, compared with 21% who expect activity to increase.
The outlook for housing in general has deteriorated sharply, with three-quarters of SMEs holding a negative view of market conditions over the next three months, while just 4% report a positive outlook. This compares with 37% reporting a negative outlook and 28% a positive outlook in the previous survey.
Housing market conditions were identified as the most significant constraint, cited by 69% of respondents, followed by low buyer confidence (63%) and mortgage interest rates (41%). Affordability pressures remain widespread, with more than a third (34%) identifying affordability as a key barrier. The findings also reveal a shift in the barriers most constraining housing delivery. For the first time, development viability has overtaken planning delays as the most significant supply-side challenge facing SME home builders.
The survey shows SME home builders want to see measures to improve viability and stimulate demand. Almost all respondents (99%) said Government action to improve viability would make them more likely to bring forward new sites, including 83% who said it would make them very likely to do so, while 87% said additional support for first-time buyers would increase their likelihood of starting new sites. It is the first time in 60 years that there is no Government support in place for buyers.