Small and medium-sized home builders are experiencing a sharp deterioration in confidence, new research suggests.
The Home Builders Federation’s (HBF) second quarterly SME Developer Sentiment Survey, in partnership with Quantum Development Finance (QDF), shows expectations for land purchasing, housing starts and housing market conditions have all weakened.
The survey tracks changes in the confidence of smaller home builders – those building up to 500 homes – and the barriers preventing them from expanding.
More than 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.
A quarter of respondents said that concerns arising from the conflict had led their business to reconsider or pause the acquisition of new development sites.
Nearly half (49%) of SME developers expect to reduce land purchasing activity over the next three months, compared with just 18% who expect to increase it, representing a significant decline from the first quarter.
Expectations for housing starts have also weakened considerably, with a majority (94%) saying 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.
Three-quarters of SME developers hold 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 also remain widespread, with more than a third (34%) identifying affordability as a key barrier to housing delivery.
A report published by HBF last month showed that increases in taxes and policy costs levied on new homes have increased the cost to build a new home by, on average £76k.
Three-quarters of respondents identified development viability as one of the top three barriers limiting delivery, up from 57% in the first quarter. Planning delays remain a major obstacle, cited by 74% of respondents, while concerns over the cost and availability of materials increased sharply, rising from 10% to 30%.
Neil Jefferson, chief executive at the Home Builders Federation, said: “The findings of the latest SME sentiment survey paint a very concerning picture. SME home builders are operating in an increasingly challenging market, whilst higher taxes and policy costs are making many sites unviable, reducing confidence and construction activity.
“This decline in confidence has significant implications for housing delivery and the sector’s ability to meet national housing targets. Addressing both longstanding barriers, such as planning delays, and emerging challenges, including rising costs driven by global instability and proposed tax changes, will be critical if SMEs are to invest confidently and help increase housing supply.
“While we welcome Government reforms to the planning system, if we are to increase housing supply broader interventions are urgently required. With a change in Prime Ministerial leadership on the horizon, there is a clear opportunity to reverse these concerning trends and unlock the full potential of smaller builders to help deliver the homes the country needs.”
Richard Hemmings, managing director, Quantum Development Finance, said: “There is no doubt the housing market is in the doldrums. However, the apparent ceasefire in the Gulf offers some grounds for cautious optimism – if it holds, it should help moderate inflationary pressures, ease fears over rising interest rates, and encourage greater numbers of buyers back to the market.”
