Removing red tape for SME housebuilders could be the key if Labour are to solve the housing crisis

The latest analysis by specialist property lending experts, Rangewell, has revealed how red tape requirements have continued to restrict SME housebuilders when it comes to their ability to new homes and how incentivising them could help Labour reach its ambitious target of 370,000 new homes a year.

Last week, Labour announced that it was increasing its already ambitious target of delivering 300,000 new homes a year to 370,000. The party has a tough task ahead of it, as analysis of Gov figures by Rangewell shows that, over the last 10 years, an average of 188,194 homes have been built per year, with the highest total hitting just 214,594 in 2022.

Whilst SMEs currently play a vital role in delivering much needed housing stock, their delivery as a proportion of all homes built is small, particularly when compared to historic delivery levels.

Decline in SME delivery levels

In fact, according to the Federation of Master Builders (FMB), 40 years ago SME housebuilders were responsible for 40% of all homes built (1984-1988), with Rangewell's analysis of historic house building data estimating that this resulted in an average of 85,310 homes delivered per year.

Fast forward to 2020 and the proportion of all homes delivered by SME housebuilders had slumped to just 10%, equating to an estimated 18,151 homes delivered annually according to Rangewell.

The good news is that SME house building has increased marginally in recent years, with the Government showing support with the launch of the Levelling Up Home Building Fund and the ENABLE Build Programme which launched in 2020, whilst also promising to help SME housebuilders - first in its 'Planning for the Future' White Paper, then following responses to its House of Lords Built Environment Committee enquiry in March of 2022.

However, these initiatives are yet to bear any real fruit and it's estimated by the FMB that the share of homes delivered by SME housebuilders has increased from 10% in 2020 to just 12% today, with Rangewell estimating that this equated to 22,046 UK homes last year (2023-24), just 3,895 more homes than in 2020 - an increase of 21%

This remains some 74% below the estimated average annual rate of delivery seen in the mid to late 1980s and Rangewell believes this is largely down to the red tape that restricts SME housebuilders from breaking ground.

Is red tape to blame?

Additional data from Lichfields shows that in 1990, SME housebuilders faced just four associated requirements when it came to the development of new homes - The outline of proposed development 'red line', ownership certificates, short form planning stations, and access points - with the estimated cost in meeting these requirements sitting at £28,000.

Today, there are no less than 43 requirements that need to be met and, what's more, the cost of doing so has climbed by 346% to £125,000.

This has led to a number of additional challenges for SME housebuilders, including a substantial increase in the time it takes to achieve an outline permission, not to mention an increase in risk with typically around 30 separate investments now required to establish a principle of development.

Alasdair McPherson, Head of Partnerships at Rangewell, commented:

"Our new Labour Government has introduced some extremely ambitious house building targets and if they are to come close to hitting them, it's vital they do more to incentivise the nation's SME housebuilders.

When Rangewell works with SME developers on their financial feasibility models, input costs are almost always a primary factor that has led to a reduction in output over the years.  Targeted financial incentives would significantly stimulate increased provision of new builds by SME developers and would certainly be welcomed, whether they be in the form of tax relief such as VAT refunds which are currently only afforded to DIY builders, stamp duty relief, or incentives for using less desirable land such as infill plots.

However, it's fair to say that much of the increased costs being faced today have come due to a substantial increase in red tape requirements and it's this additional red tape that has proven to be the real issue facing SME housebuilders. The long list of associated requirements, coupled with local authority budget cuts, have led to long delays in winning consent and these are delays that simply can't be afforded by SME housebuilders, who are often reliant on a single development to bring in revenue and generate profit.

Reducing the number of associated requirements needed for small development sites would make all the difference, as would an increase on the threshold of small site classification."