An “alarming reduction” in the small and medium enterprise-sized home building sector in Scotland has been revealed.
According to a report published today by representative body Homes for Scotland, 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.
An analysis of companies involved in the construction of domestic buildings also shows that there has been a 45% increase in dissolutions in 2023 in the sector compared to 2019.
The research showed that: “The dissolved companies are typically under five years of age, with headquarters mainly in core urban centres as well as in North and South Lanarkshire.”
Over one-third of housing delivery in rural and remote areas is undertaken by SME developers. These areas are often more challenging from logistical and market perspectives. Larger home builders concentrate their operations in urban and accessible market areas, with minimal exposure to rural and remote markets. (Image: Homes for Scotland)
In the context of what is now a national housing emergency and at a time when 28% of Scottish households, some 693,000, are in some form of housing need, Jane Wood, HFS chief executive, said: “This research fills a significant data gap and is essential if we are to develop evidence-based policy to effectively address the housing emergency.
“Given the vital role which SME home builders have to play in Scotland’s housing ecosystem, it shows alarming reductions in terms of market share and the number of companies which have been dissolved.
“This clearly has capacity implications for the delivery of much-needed new homes of all tenures.
“Our research found that SME home builders are key to unlocking the brownfield sites which the Scottish Government has said it wants to prioritise. Our data also reveals their importance in delivering housing in rural and remote areas.
“SME home builders have particular challenges in relation to the viability of their operations, not least in relation to economies of scale, ever increasing regulation and the upfront costs associated with residential development.
“Above all, however, the planning and consenting systems are having a hugely detrimental impact, especially in relation to the speed of processing and resourcing. This is a hugely frustrating state of affairs.”
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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 and new innovative funding streams and partnerships to remediate and unlock sites”.
Ms Wood also said: “This report shows that before the financial crisis, SMEs were delivering 3,000 more new homes each year than they are now. A return to this level could support an additional 13,200 jobs.
“The social and economic imperatives are clear to see. If parties and politicians of all persuasions and local authorities are genuinely serious about addressing the housing emergency, they must now act to introduce the reform that is required to improve to support home building if we are to meet the needs and aspirations of those living across the entirety of the country. HFS and its members are absolutely committed to working with them to achieve this.”
Hugh Fairbrother, strategic development business manager at Scottish Water, which partnered with HFS on the research, said:
“SME home builders are a diverse and dynamic sector, contributing to the economic and social wellbeing of communities across Scotland. They face many challenges and opportunities in the current operating environment.
“The insights gathered by this research will help Scottish Water innovate and collaborate with the industry, support the transition to a net zero economy and help SMEs to unlock their potential to deliver more and better homes across all tenures for Scotland.”
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.
“I urge policymakers to take note of these findings, listen to what is needed to remove barriers and help support the SME sector to flourish in Scotland, reaping these benefits for all.”
HFS commissioned Rettie to update key statistics on how Scottish SME home builders.
Paul McLennan, Scottish Housing Minister, said: “This report from Homes for Scotland is a helpful contribution to understanding the specific challenges faced by SMEs within the wider context of a challenging building environment across the housing sector.
“While we remain focused on delivering 110,000 affordable homes by 2032, our capital block grant is being reduced by nearly 10%, a loss of more than £1.3 billion by 2027-28. Likewise, our Financial Transactions budget – key to delivering affordable housing – has been cut by 62%.
“We are investing almost £600 million in the affordable housing supply programme in 2024-25. To maximise the impact of this investment, we are concluding our review of this programme with inputs from stakeholders to ensure resources are being deployed to optimal effect. We are also working on the development of specific options to attract private investment through the housing investment task force.
“We also recognise the crucial role of a well-resourced planning system. The new national planning improvement champion will monitor performance, look at trends, share good practice and identify efficiencies. We received positive feedback on our proposals in the recent Investing in Planning consultation, and we will now work at pace to support planning services through an increase in resources and skills development.”
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