Small differences in the way lending is structured and delays related to planning applications are among the factors that are holding them back.
Research by the NHBC Foundation, published today, shows that there has been a significant decline in the number of small firms active in house building in recent years – halving between 2007 and 2013, with only 2,710 estimated to have been building last year.
Their report - Improving the Prospects for Small House Builders and Developers - explored the business environment that small firms are experiencing by capturing the views of nearly 500 small house builders and developers.
It found that despite encouraging signs of house-building growth in the UK, the early stages of the recovery do not appear to have improved prospects for smaller builders.
One third of those who took part in the research said that that the planning application process and conditions attached to planning represented a major challenge to their business.
Securing suitable finance for projects was identified as a major challenge for nearly a quarter (22%) of smaller companies.
Neil Smith, Head of Research and Innovation,
NHBC, said: “Small house builders and developers have made a significant contribution to the UK’s housing output over the years.
“Our research has found that the current business environment is not conducive to growth. There are a number of factors are at play, related in particular to the planning system, access to finance, land availability and a shortage of skills.
“For small companies, who often have limited financial resources or reserves, small differences in the way lending is structured and delays related to planning applications (among other factors) can be critical and make all the difference to the long-term viability of their business.
“The UK is still building way below the number of homes we need. We must make it a priority to address these barriers if small house builders and developers are to prosper and make a greater contribution to the housing-market recovery.”
The NHBC Foundation, established in 2006, provides research and practical guidance to support the house-building industry as it addresses the challenges of delivering 21st Century new homes.
The availability of land at a suitable price was seen as major challenge by 14% of the small companies.
Nearly three quarters (74%) felt that there would be insufficient good quality subcontractors and trades to meet the needs of a growth market over the next 2-3 years.
The report contains a number of recommendations to address these barriers and help small house builders to prosper and grow.
These include speeding up decision making on planning decisions and planning conditions and improve communication.
The report also recommends greater efforts to promote the Builders Finance Fund for smaller builders, a Government initiative announced in the last Budget.
Banks should offer more flexible funding arrangements and conditions, to reflect the cash flow challenges of developing a site, it said.