£76,000: The added cost crushing Britain’s small house builders

Confidence among Britain’s small and medium-sized house builders has collapsed, with nearly half now planning to buy less land and three-quarters holding a negative view of the market over the next three months.

The numbers, from the second quarterly SME Developer Sentiment Survey run by the Home Builders Federation (HBF) and Quantum Development Finance (QDF), are grim reading.

But the figure that explains the rout is the one builders keep coming back to: a separate HBF report last month put the added cost of building a new home, driven by higher taxes and policy costs, at an average of £76,000.

For firms delivering a handful of homes a year, that is not a line on a spreadsheet. It is the difference between a site going ahead and a site being shelved.

And shelving is exactly what is happening.

Confidence plummets

Across every measure the survey tracks, sentiment has gone backwards since the March survey:

• Land buying: net balance of -31%, down from +5% in Q1. Almost half (49%) expect to purchase less land; just 18% expect to buy more, down from 32%.
• Housing starts: net balance of -23%, down from +12%. 44% expect starts to fall; only 21% expect them to rise.
• Market outlook: net balance of -71%, down from -9%.
• Three-quarters (75%) are now negative on the market; a mere 4% are positive.
• New sites: 94% say market conditions are making them cautious about starting, up from 70%. Nearly half (48%) report significant caution or are delaying starts altogether.

The survey ran from 8 to 22 May and drew responses from 110 SME developers building anywhere from a handful of homes to around 500 a year.

Iran tipped a fragile sector over the edge

The trigger is geopolitical. A striking 93% of respondents said the Iran conflict had made their 12-month outlook worse than expected, with just 1% disagreeing.

More than a quarter (26%) said it had pushed them to pause or reconsider buying new sites. The most common knock-on effects were reduced buyer demand (62%), pricier materials (61%) and difficulty forecasting costs (51%).

But the conflict is the spark, not the kindling. The survey’s own framing is blunt that geopolitics has exacerbated, not caused, the squeeze.

The pressures, weak buyer demand, thin viability and a slow planning system, were all there before the first missile flew. As one respondent put it: “There were green shoots earlier this year until the Iran conflict.”

Viability has now overtaken planning as the biggest problem

For the first time, development viability has overtaken planning delays as the top supply-side barrier, cited by 75% of respondents, up from 57% in Q1.

Planning delays remain a close second at 74%, but the message is that even a site with permission no longer pencils out. Worry about the cost and availability of materials, meanwhile, has tripled, jumping from 10% to 30%.

On the demand side, housing market conditions (69%) have displaced low buyer confidence (63%) as the most-cited constraint, and mortgage interest rates have climbed from sixth place to third (41%, up from 22%).

What builders actually want

The asks are near-unanimous. 99% said Government action to improve viability would make them more likely to bring sites forward, including 83% who said “very likely”.

And 87% said extra support for first-time buyers would have the same effect, which matters given the survey’s pointed reminder that this is the first time in 60 years there has been no Government support in place for buyers.

HBF is using that gap to press the incoming Prime Minister – likely Andy Burnham – for a new equity loan scheme alongside a cheaper, simpler planning system, more small sites through Local Plans, Section 106 reform, an SME exemption from the Building Safety Levy, and faster utility and infrastructure connections.

Neil Jefferson, Chief Executive at the Home Builders Federation, said the latest survey “paint a very concerning picture”, warning that higher taxes and policy costs “are making many sites unviable, reducing confidence and construction activity”.

Jefferson argued the leadership change offers “a clear opportunity to reverse these concerning trends”.

Richard Hemmings, Managing Director at Quantum Development Finance, was sharper still, calling the scale of the decline “truly alarming” and the market “in the doldrums”.

His one note of optimism was the Gulf ceasefire, which, if it holds, “should help moderate inflationary pressures, ease fears over rising interest rates, and encourage greater numbers of buyers back to the market”.

Ceasefire or not, a sector that cannot make sites add up will not build its way to the Government’s housing targets. The £76,000 problem was here before Iran, and it will still be here after.

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