Red tape and rising costs are highlighted as key issues, with nearly 9 in 10 survey respondents saying government policies are making it harder for them to build.

These latest insights are provided by SME home builder members of sector body Homes for Scotland (HFS) who, combined, built more than 2,500 homes across all tenures in 2024, including 1,075 for social rent. This represents 12.6% of the 19,797 homes delivered in Scotland last year.

Respondents claim that new regulations brought in since 2021 are responsible for in excess of £20,000 of additional costs on developing every new home, increasing already constrained housing affordability.

Planning holdups are also continuing to be problematic, with 96% of SME home builders saying that slow planning decisions are blocking progress and stopping much-needed new homes from being delivered.

Sector leaders are now demanding action if the Scottish Government is serious about combatting the housing emergency.

Fionna Kell, HFS director of policy, said: “Our small and medium home builders are facing a barrage of costs and delays that make it increasingly harder for them to deliver the range of homes that Scotland needs and to grow their businesses sustainably.

“Without a thriving SME home building sector, many sites in rural and town centre locations, or those on smaller or trickier pieces of brownfield land which require additional remediation, would just never be built. With national planning policy prioritising the development of brownfield sites in Scotland, we need to see government-backed funding solutions to increase the development of private and affordable homes by SMEs who face disproportionate infrastructure costs.”

HFS is recommending an overhaul of government regulation to reduce cost and complexity to make it easier for smaller businesses to build. Specifically, it is asking that SMEs will not be subject to the Building Safety Levy, a new tax proposed by the Scottish Government on new homes. It also says that planning must be streamlined, reflecting the recent reforms proposed by the UK Government to boost housing delivery in England.

Fife-based home builder Campion Homes says that it is vital that smaller builders get support. Joint managing director Susan Jackson said: “Builders like us can deliver projects in our local communities providing training and jobs whilst also supporting and boosting the local economy. We also provide diversity in the market offering more house types, layouts and price points that are more responsive to customer needs.”

A lack of construction skills is also causing a headache for home builders. 88% of SMEs are concerned about workforce capacity, putting even more pressure on the housing pipeline in the coming years.

Fionna added: “Our members are committed to growing the sector and offering the wide array of socio-economic benefits SMEs bring to local communities. However, they require bold interventionist support, delivered at pace from both national and local government if we are to fully realise this potential.”

The report also highlights the important role that utility providers have to play in delivering new housing, particularly in relation to wastewater, sewage and water supply connections.

HFS also says that SMEs struggle to access the finance and funding they need to deliver projects. They insist that government funding schemes, like the Housing Infrastructure Fund, must be adapted to make it easier for smaller home builders to access.

According to the report, SME home builders were responsible for selling 1800 private homes in Scotland last year, despite a 6 per cent reduction in the number of SMEs on the previous year to just 125.

Susan added: “There is a real opportunity for the new Cabinet Secretary for Housing to make a huge difference to the sector, especially those SME builders that deliver homes up and down Scotland.

“We are desperate to play our part in delivering the homes that Scotland needs. We just need the government to help us unleash this potential.”

The report was developed in partnership with VELUX. The company’s national housing development manager, Trevor Smith, said: “VELUX and the wider supply chain is all too aware the alarming reduction in SME home builder activity and therefore delighted to be supporting this crucial initiative which provides an important update on the footprint of this vital sector.”