SME housebuilders go bust in record numbers

In the 12 months to September, 343 housebuilders became insolvent.

Released under a Freedom of Information request made by accountants Price Bailey to the Insolvency Service, the data revealed a 67 per cent increase in housebuilder insolvencies over the last three years, taking numbers to a record annual high.

In 2017/18, 272 housebuilders went bust, 220 in 2016/17 and 205 in 2015/16.

Price Bailey said that while the large, listed housebuilders have fared well over the last few years, SME housebuilders’ profit margins have been squeezed simultaneously stagnating house prices in London and the South East and rising material and labour costs.

The depreciation of the pound since the UK’s decision to leave the EU has pushed up prices of raw materials and the departure of Eastern European workers has driven up the cost of wages.

Paul Pittman, partner at Price Bailey, said: “The listed housebuilders have performed well over the last few years but their success has masked problems in the wider sector. While the number of new houses being built is at an 11-year high and profit margins have doubled over the same period, SME housebuilders have struggled.”

Pittman said that while large builders have been buoyed by rising house prices, low interest rates, a competitive mortgage market and the Help to Buy scheme, smaller builders do not benefit from the same economies of scale.

He added: “Subdued activity in London and the South East and falling prices as people defer purchases due to Brexit uncertainty have all taken their toll on the smaller housebuilders.”

SME housebuilders are more likely to develop small plots of land, and build on brown field sites. They also tend to deliver diverse housing stock.

The country needed a “healthy ecosystem of smaller builders” said Pittman.

He added: “The proportion of new houses built by small housebuilders is dwindling and yet there is huge opportunity to build homes on the small parcels of land which the big developers won’t touch. The housing market is highly regulated and capital intensive, making it very difficult for new entrants to gain a foothold.”