99% of small and medium home builders say viability pressures are reducing their ability to deliver new homes, according to the 2026/27 State of Play report from Close Brothers Property Finance, the Home Builders Federation (HBF) and VELUX. Seven in 10 (70%) say these pressures are significantly reducing delivery.
The proportion of SME developers citing cumulative viability pressures as a major barrier to growth has jumped from 64% last year to 82% and is now the second biggest barrier facing the sector following planning delays (88%) which has been cited as the biggest major challenge for the seventh consecutive time. HBF estimates that taxes, regulatory compliance and higher built costs have added £76,000 to the cost of building a new home compared to 2020, over 20% of the average value of a new build home.
Asked what they most wished politicians understood about home building, 72% pointed to the misconception that land values can absorb unlimited policy and regulatory costs. 71% cited the cumulative impact of planning obligations, taxes and regulation on viability.
As a result of these pressures, many SME home builders are being forced to scale back:
- 63% have delayed progressing a site or put work on hold
- 59% have cut down on the number of new sites acquired
- Four in 10 (41%) have made redundancies or cut down on their contracted workforce
This trend looks set to continue. Over the next 12 months, 41% expect to bring forward fewer sites and 21% expect to exit certain markets or areas of development, with just 18% expecting to expand. SMEs are also finding it harder to secure suitable sites, with two-thirds (67%) saying the availability of viable small and medium-sized sites has worsened over the past year.
Phil Hooper, Chief Executive Officer of Close Brothers Property Finance, comments: “There is no doubt that the current market is one of the most challenging in decades. SME housebuilders tell us the numbers are no longer stacking up and they’re having to put sites on hold, buy less land and cut jobs. Measures such as Your First Home are welcome but until the costs being piled on to every new home are tackled, more SMEs will be stepping back.”
Viability pressures are being compounded by weaker sales, with 95% of respondents saying buyer affordability is constraining demand for new build homes. In the survey, which was carried out before the announcement of Your First Home, 72% cite the lack of Government support for first-time buyers as a major barrier, up from 58% last year.
In the Budget, the Chancellor set out the details of Your First Home, the Government’s new equity loan scheme. Qualifying buyers will get a Government equity loan worth 20% of the purchase price, interest-free for the first 5 years, and put down a deposit between 2.5% and 15%. Home builders taking part will pay a fee on a sliding scale, starting at 1% of the sale price for their first 100 homes sold through the scheme each year, rising to 3% on the next 150 homes and 4% on sales above 250.
The Chancellor also committed to introducing no further major building regulations for the rest of this Parliament and confirmed a targeted biodiversity net gain exemption for brownfield sites. Whilst a positive step, these exemptions will do little to address the wider regulatory and policy cost burden on home building and are unlikely to deliver significant benefits across the wider development sector.
The report calls for a moratorium on new policy costs, taxes and levies, alongside a call for the Building Safety Levy, introduced on 1 October, to be repealed.
Neil Jefferson, Chief Executive of the Home Builders Federation, comments: “While Government has introduced a number of measures aimed at supporting home building, the reality for SME developers remains challenging. Excessive complexity, rising costs and lengthy delays continue to constrain their ability to deliver new homes, invest in growth and enter the market.
““Delivering the increase in housing supply that the Government wants to see will require a stronger focus on the role of smaller builders. This means going beyond planning reform alone to address the wider barriers holding back SME development.
“Creating an environment in which small and medium sized developers can operate with greater certainty and confidence is vital to unlocking investment in future housing delivery. Without targeted action that enables them to continue operating in an increasingly difficult market, SMEs will continue to face disproportionate barriers, limiting competition, diversity and resilience across the home building sector.”
Rising materials costs have also put SME developers under strain, with 60% of respondents citing the supply and cost of materials as a major barrier, a sharp rise from 41% last year. 63% say construction material costs have increases ‘significantly’ over the past 12 months.
Trevor Smith, National Housing Development Manager at VELUX, comments: “As a manufacturer, we know the pressure the supply chain is putting on businesses. For smaller firms, rising material costs make already narrow margins even thinner. We can play our part by working with SMEs on flexible solutions, but the industry needs more support from Government too.”
To ease pressures faced by SME home builders, the report calls on Government to:
- Address the viability pressures that are hindering the supply of new homes
- Turn underlying demand into effective demand
- Make the planning process work for SME developers
- Fix the challenges in the Section 106 Affordable Housing market
