SME builders on the verge of extinction as numbers plummet 80%

The latest research from the real estate debt advisory specialists, Sirius Property Finance, has revealed why recently introduced government measures to help boost the number of SME property developers is sorely needed, as SME numbers have plummeted by 80% since the late 80s.

Defined as small to medium-sized housebuilders, SME developers typically deliver between one and 1,000 homes to market on an annual basis, with a focus on smaller projects compared to the big names in the sector.

In February of this year, the government’s housing accelerator, Homes England, together with the United Trust Bank, announced a £250m fund aimed at supporting SME builders – with the additional carrot of development finance up to a 70% loan to gross development value.

The market analysis by Sirius Property Finance shows why this help is badly needed in order to help boost the dwindling number of SMEs.

The data shows that in 1988, there were 12,215 SMEs operating across England delivering 77,524 new homes to the market. That was 40% of all new homes with an estimated market value of over £4.6bn, a significant proportion of market activity.

However, since then, SMEs have faced various challenges including red tape barriers around finance and planning, a reduced level of opportunity due to not one, but two financial crashes, complicated public procurement processes and most notably, growing competition from the big housebuilders.

As a result, the latest data shows SMEs are on the verge of extinction with just 2,500 currently operational across England. That’s an -80% reduction since 1988 at a rate of 335 SME developers a year (-2.7%).

As a result, the number of new homes built on an annual basis by SMEs has reduced from 40% in 1988 to just 12% today. The only silver lining is that far higher new-build house prices mean the value of this 12% is higher than the 40% built back in 1988 at almost £5.8bn.

Managing Director of Sirius Property Finance, Nicholas Christofi, comments: “Although it’s great to see the government finally recognise the importance of SMEs and the role they play in delivering much needed housing stock, it’s fair to say that this support is long overdue and perhaps too little too late.

In the last three decades, they’ve come close to extinction due to a range of factors, but most notably due to competition from the big housebuilders and, as a result, the number of operational SMEs has plummeted.

Hopefully, we will now see a reversal in this downward trend and the number of SMEs will once again start to climb. While the big housebuilders do an admirable job, greater variety and competition within the sector can only be positive and will force standards and quality of output to climb across the board.”

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