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Paving The Road to Recovery For SME Housebuilders

Peter Hemple looks at the challenges and opportunities that SME builders currently face

More than nine out of ten smaller housebuilders have said planning is the biggest obstacle to increasing their housing delivery, according to a recent survey by the Home Builder’s Federation (HBF) and Close Brothers Property Finance. The online survey questioned more than 100 senior representatives of SME companies that build 30-200 units per year, to look deeper at how the events over the past two years have changed the landscape for SMEs. It found that SME builders continue to face obstacles at all stages of the house building process. This is preventing many from reaching their ambitions for growth and threatening the existence of some.

The ongoing challenges associated with the planning process, as well as new materials and labour challenges, have made the market increasingly difficult for SMEs. Below is a summary of the key challenges that SME companies face at the moment, as listed in the HBF report. However, I have ranked these challenges by how much more of a problem they are today compared to a year ago, to give an idea of the most pressing issues that SME housebuilders have had to deal with over the past 12 months.

Challenge No. 1 – Material shortages and inflation
The biggest change last year for SMEs was the rapid increase in the cost of materials. In recent months, global materials shortages and subsequent price inflation have proven to be a significant barrier for SMEs and 78% of respondents believe the supply and cost of materials is a major barrier to housing delivery, up from just 20% in 2020, (an increase of 290%).

Respondents also believe that this is an area where larger developers benefit, not only because they have the cash flow available to cushion the effects of higher prices, but also because they are able to buy materials in bulk and therefore get better deals from suppliers. However, while some respondents stated that the increases could be absorbed by higher house prices, most felt that this is not always possible as materials were running out before houses could be completed and they therefore could not be sold.

It was also noted that house price inflation was regionally patchy but all regions are experiencing these cost increases. Not only is this reducing the ability of SMEs to compensate for the higher prices through house sales, but the rising cost of interest for finance to manage cash flow until they are sold, poses yet another cost pressure.

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