A report published today by representative body Homes for Scotland (HFS) shows the proportion of new homes sold by those building between three and 49 homes per annum has fallen from around 40% in 2017 to 20% in 2023.

The decline comes in the context of a national housing emergency and at a time when 28% of Scottish households (693,000) are in some form of housing need.

HFS chief executive Jane Wood said: “This research fills a significant data gap and is essential if we are to develop evidence-based policy to effectively address the housing emergency.

“Given the vital role which SME home builders have to play in Scotland’s housing ecosystem, it shows alarming reductions in terms of market share and the number of companies which have been dissolved. This clearly has capacity implications for the delivery of much-needed new homes of all tenures.”

She continued: “Our research found that SME home builders are key to unlocking the brownfield sites which the Scottish Government has said it wants to prioritise. Our data also reveals their importance in delivering housing in rural and remote areas.

“SME home builders have particular challenges in relation to the viability of their operations, not least in relation to economies of scale, ever increasing regulation and the upfront costs associated with residential development.

“Above all, however, the planning and consenting systems are having a hugely detrimental impact, especially in relation to the speed of processing and resourcing. This is a hugely frustrating state of affairs.”

Recommendations for national and local governments to act upon to support the SME home building sector include:

• The undertaking of an urgent cross-portfolio review to identify, consider and remove SME burdens and challenges
• Proportionate planning practices that actively support SMEs
• New innovative funding streams and partnerships to remediate and unlock sites
• The implementation of an SME home builder impact assessment relating to policy proposals and changes
• The creation of a focused delivery vehicle to unlock more small sites

Ms Wood added: “This report shows that before the financial crisis, SMEs were delivering 3,000 more new homes each year than they are now.

“A return to this level could support an additional 13,200 jobs. The social and economic imperatives are clear to see.

“If parties and politicians of all persuasions and local authorities are genuinely serious about addressing the housing emergency, they must now act to introduce the reform that is required to improve to support home building if we are to meet the needs and aspirations of those living across the entirety of the country.

“HFS and its members are absolutely committed to working with them to achieve this.”

Hugh Fairbrother, strategic development business manager at Scottish Water, which partnered with HFS on the research, said: “SME home builders are a diverse and dynamic sector, contributing to the economic and social wellbeing of communities across Scotland. They face many challenges and opportunities in the current operating environment.

“The insights gathered by this research will help Scottish Water innovate and collaborate with the industry, support the transition to a net zero economy and help SMEs to unlock their potential to deliver more and better homes across all tenures for Scotland.”

Eve McCurrich, managing director of Whiteburn Projects, this year’s HFS SME Home Builder of the Year, said: “SMEs are tremendously important to the diversity of new home delivery across Scotland.

“As demonstrated by the research, the decline in the number of SMEs is stark evidence of the loss of local house builders across Scotland.

“A buoyant SME culture would not only see the creation of new businesses and new jobs, but importantly, it would provide new homes. These benefits would all positively contribute to their local economies.

“I urge policy makers to take note of these findings, listen to what is needed to remove barriers and help support the SME sector to flourish in Scotland, reaping these benefits for all.”