New independent research has revealed a significant decline in Scotland’s small and medium-sized (SME) home-building sector.
According to a report published today by representative body Homes for Scotland (HFS), the proportion of new homes sold by those building between 3 and 49 homes per annum has fallen from around 40% in 2017 to 20% in 2023.
This decline comes amid a national housing emergency, with 28% of Scottish households, or 693,000 homes, in some form of housing need.
The report underscores the need for more sophisticated planning metrics to address the growing demand for housing, driven in part by substantial immigration over the past 25 years.
Adopting a wider UK perspective, Scottish Business News identified that for the period 1997 to 2023, using figures from the Office of National Statistics, gross legal immigration accounted for over 16 million new arrivals.
However, companies face significant challenges, including economies of scale, increasing regulation, and upfront development costs.
The HFS research particularly emphasises the detrimental impact of slow and under-resourced planning and consenting systems on SME builders.
Jane Wood, HFS Chief Executive told Scottish Business News: “The rest of the UK, has seen similarly alarming reductions in the market share of SME builders.
“Our sister organisation page reported in 2017 that in 1988 small housebuilders were responsible for 1 in 10 compared to just 12% today, so it shrunk 50 to 60% down in the rest of the UK from 2016.
“Our research shows that 1/3 of remote home building is undertaken by SMEs.
“This compares to 13% in urban areas, SME happens because these areas are often more challenging from logistical and market perspectives.”
“Often these areas, won’t have the larger house builders there, whilst they still have challenges with planning and other issues, they do tend to do the smaller sites.
When asked about the main challenges and opportunities for SME home builders in the current operating environment, Wood said: “Planning was a key area of concern for home builders.
“Every single SME that we interviewed cited that the speed of processing and decision-making had a detrimental impact on their activities.”
“A lot of house building is upfront cost so they’ll have debt finance, meaning a planning application that should last 12 weeks goes to 64 weeks.
Wood calls for the planning system to be faster and for SME home builder developer contributions to be more proportionate.
However, these companies face significant challenges, including economies of scale, increasing regulation, and upfront development costs.
The research particularly emphasises the detrimental impact of slow and under-resourced planning and consenting systems on SME builders.
HFS is working with the Scottish Government, looking at innovation funding streams and partnerships.
Wood said: “We are looking into different finance options for SME builders, so they can manage the changes, the other issue for SMEs and all house builders is the policy and regulatory costs.
Eve McCurrich, Managing Director of Whiteburn Projects, this year’s HFS SME Home Builder of the Year, said: “SMEs are tremendously important to the diversity of new home delivery across Scotland.
“As demonstrated by the research, the decline in the number of SMEs is stark evidence of the loss of local house builders across Scotland.
“A buoyant SME culture would not only see the creation of new businesses and new jobs, but importantly, it would provide new homes. These benefits would all positively contribute to their local economies.
Recommendations for national and local governments to act upon to support the SME home-building sector include:
- The undertaking of an urgent cross-portfolio review to identify, consider and remove SME burdens and challenges
- Proportionate planning practices that actively support SMEs
- New innovative funding streams and partnerships to remediate and unlock sites
- The implementation of an SME home builder impact assessment relating to policy proposals and changes
- The creation of a focused delivery vehicle to unlock more small sites
In light of these findings, policymakers, industry stakeholders, and local authorities must collaborate to develop and implement comprehensive strategies that address the multifaceted challenges facing Scotland’s housing market.
This includes increasing the supply of affordable homes and ensuring that planning processes are streamlined and responsive to the evolving needs of the population.
Without decisive action, the housing crisis will continue to increase, leaving many Scottish households in precarious living conditions and hindering the overall economic and social well-being of the nation.