Challenges for SME developers

In addition, a third of SME developers have ceased operating over the last two decades. Recent analysis from the Federation of Master Builders found that the proportion of planning permissions granted on sites for 1-9 units has declined over the last 13 years from 21% in 2010-11 to 9.3% in 2023-24. Savills Research for the Land Planning & Development Federation in 2023 highlighted the pressing need for smaller development sites, which would require reforms to support SMEs.

It is no coincidence that, over a similar period, the planning process has become ever more complex and disproportionate in dealing with small and medium-sized residential development. The level of information and reporting required to support applications has spiralled. The introduction of Biodiversity Net Gain (BNG) requirements and the imposition of financial levies and Section 106 (s106) contributions have increased significantly across the board. There is a notable layering of policy expectations on all developments currently, which imposes risk on securing a favourable decision and has viability implications.

The working paper recognises these challenges, stating:

“SMEs have pointed to the planning and regulatory systems as key obstacles to government meeting those ambitions, serving to stifle growth of the sector and prevent much needed homes from coming forward.

“The acute nature of this challenge requires more than policy changes alone. That is why the government is proposing a broader range of options to restore SMEs as a backbone of our housebuilding system and unlock development.”

Significant reform

So how exactly is the government intending to free SME developers from their shackles? And how can we enable a consistent and plentiful pipeline of planning permissions on small and medium sites? The devil will be in the detail but, on the face of it, the working paper proposes some significant ideas for reform.

The paper considers options to introduce new development thresholds to unlock smaller or medium-sized sites. The three key principles are:

1. Moving to a more proportionate planning system that offers a more gradated approach and responds to the needs of different sizes of site. This includes lifting disproportionate requirements for the smaller sites, streamlining requirements for medium sites, and setting clearer expectations for strategic sites.
2. Establishing clearer categories of development that can support a more effective market, greater consistency across the planning system, and allows more sophisticated and targeted approaches to government policy – both now and in the future.
3. Providing greater upfront certainty on planning requirements for different site sizes, helping to de-risk and speed up development.

Very Small Sites <0.1ha

• Delivery through template design codes which are locally adaptable for different site types and thresholds 
• Use of digital tools to check compliance with design codes

Minor Development < 10 homes/0.5 ha

• Exempt from affordable housing, the Building Safety Levy and potential full exemption from BNG 
• 8-week statutory determination period 
• Officer delegated decision instead of Planning Committee

Medium Development 10-49 homes/0.5-1 ha

• New threshold to bridge gap between minor and major development 
• Simplified BNG requirements via a revised metric 
• Potential exemption from the Building Safety Levy
• Exemption from build-out transparency rules
• 13-week determination period, with performance tracking 
• Officer delegated decision instead of Planning Committee, where appropriate 
• Permission in Principle extended to this category
• Reduced validation and statutory information requirements

Major Development 50+ homes/> 1ha

• Working paper focuses mainly on sites of less than 50 dwellings 
• Considering a range of options to set a threshold whereby mixed tenure development should apply

Streamlining s106

The Ministry of Housing, Communities and Local Government (MHCLG) has recognised that the s106 process can be protracted, increasing costs and causing delays and that this disproportionately affects SMEs. There is a request for ideas and evidence on the following items:

1. The specific barriers facing SMEs in agreeing s106 obligations, including availability of willing and suitable Registered Providers. 
2. What role national government should play in improving the process, including the merit of a standardised s106 for medium sites
3. How rules relating to off-site provision and appropriate financial payments on sites below the medium site threshold could be reformed to improve delivery.

Next steps

The government will consider comments on the working paper until 9 July 2025 before undertaking a full consultation later this year. It is then government’s intention to make the changes to development thresholds through amendments to secondary legislation, and introduce other measures (e.g. a simplified BNG metric). 

The changes to the thresholds and general dialogue will certainly be welcomed by SME developers. Radical ideas are needed to get SMEs building again and delivering more housing. The message from the government is clear – the planning system must be more agile. Timely decision making, more upfront certainty and proportionate policy and financial contribution requirements will deliver more permissions on small and medium sites and help SMEs secure the investment that will get them built.

Further information

Contact Henry Bell or Simon Wallis