A new report, Planning for Small Sites, from the Home Builders Federation (HBF) and Quantum Development Finance, using analysis from Lichfields, reveals that small- and medium-sized (SME) home builders face mounting barriers, stalling delivery on smaller sites and intensifying the country’s housing shortage.
In 2024, just 17,000 homes were approved on small sites of 3 to 9 units, down from an average of 35,000, with the proportion of total planning permissions granted on sites of 150 units or fewer, plummeting from nearly 20% in 2008 to 6-8% today, according to the report.
The report finds that planning delays, rising costs, and increasing regulatory complexity are combining to make many smaller schemes unviable, despite their importance for fast, locally-supported housing delivery.
Timescales facing planning applications for small sites are unreasonable and unmanageable, with 94% of applications missing the statutory determination deadline. The report shows that it takes, on average, 30 weeks from application to committee decision and a further 21 weeks to secure formal permission. Applications decided at committee take 53 weeks on average, 10 weeks longer than delegated decisions. 13% of sites took over two years to secure permission, and five schemes took over three years. Additionally, analysis of experiences across sites in various cities shows that small sites faced average planning fees and obligations of approximately £2 million per site.
One of the many reasons for the timescale delays highlighted in the report is the time taken to finalise Section 106 agreements, as a lack of standardisation in drafting agreements often leads to protracted negotiations and legal delays, with 76% of local authorities reporting average negotiation timescales exceeding 12 months. Alongside this, delays in responses from statutory consultees is also contributing to the protracted process.
The December 2023 increase in planning fees on Local Planning Authorities’ (LPAs) resources and their capacity to determine applications in a timely manner has also a negative impact on SMEs. Previous research from HBF found that 80% of Local Planning Authorities (LPAs) operate below full staffing capacity. However, the report finds that, following the fee increase, 87% of councils used additional income to support planning functions, yet 24% still say fees are insufficient to cover costs.
Alongside this, wider market barriers have an impact on the planning delays and costs, and significant policy pressures also fall hardest on SME home builders:
- 98% of SMEs report implementation challenges with Biodiversity Net Gain, whilst 94% report application delays as a result of BNG
- From autumn 2026, the Building Safety Levy is expected to add thousands of pounds of additional cost to build per home, regardless of height
- The recent HM Treasury Landfill Tax consultation would see rates for most of the waste from home building sites rising by 3000%, potentially adding around £15,000 per home and, in some cases, over £50,000 as a de facto new levy on new homes
- A lack of interest in Section 106 Affordable Housing from Registered Providers is delaying the delivery of around 8,500 units
- Nutrient neutrality acts as a major blocker, with SMEs unable to manoeuvre around this using expensive strategic mitigation schemes or land for offsetting
- The Planning and Infrastructure Bill will allow LPAs to fully recover application costs through higher fees, which MHCLG admits could disproportionately impact SME developers by significantly increasing the cost of minor applications
Recent policy measures announced by the Government to support SMEs have been welcomed, including introducing a medium site category and exempting developments of 49 or fewer homes from the Building Safety Levy; however, even further reaching support is needed, most crucially on speeding up the planning process.
HBF is urging Government to ensure that LPAs are sufficiently staffed and resourced by increasing the number of planners, with planning delays of LPA resourcing particularly affecting SMEs. Government should also introduce common adoptable standards for infrastructure and mandatory adoption within sensible timeframes and a standard template for Section 106 agreements.
HBF also pushed for the forthcoming changes to planning fees to provide certainty on the national default fee level; define what constitutes a cost recovery basis; clarify how it will support LPAs facing a drop in applications; and closely monitor their performance.
Neil Jefferson, Chief Executive at the Home Builders Federation, said: “SME home builders play an invaluable role in delivering homes for the UK, helping to train the workforce and boosting local economies.
“With a large proportion of the homes that SMEs build falling within the small site category, the findings from this report show that as a group they are in real danger of not just being unable to deliver homes but being unable to stay in business.
“While Government wants to assist SMEs, the barriers our members are facing is substantial, and needs intervention to reverse the trends of declining small site approvals we are seeing.
“If we are to deliver new housing at the levels Government is aspiring to, it is critical that developments and businesses of all sizes are supported and that SMEs are given the opportunity to grow.”
Oliver Thompson, Chief Executive at Quantum, said: “SME housebuilders are vital to the health of the UK housing market, yet for many of the businesses we work with, the journey from acquiring a site to delivering new homes has never been more difficult or uncertain.
“This report highlights the implications of the current planning process and illustrates that the system now demands a level of financial resilience that disadvantages SME housebuilders.”
“While we welcome the Government’s recent steps toward reform, the pace of change must accelerate. If we’re serious about fixing the housing crisis, we must fix the system and ensure SME housebuilders are supported.”
