In its annual House Builders' Survey, the organisation revealed two-thirds of SMEs reported a lack of viable land as the largest barrier buildings new homes
In addition, half of the surveys respondents cite the planning process and difficulties accessing finance as serious challenges, while under-resourcing in council planning departments causes the most delays in the planning process.
While 40% believe the construction skills crisis is now starting to affect the sector, FMB Chief Executive Brian Berry said local authorities need to find a way of allocating and granting planning permission for more small sites.
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"The current focus on large sites is squeezing out smaller developers, which is reducing competition in the housing market at a time when we need more, not less, choice," he said.
"The limited supply of opportunities for small scale development is one of a number of key structural constraints that has seen the number of homes built by SMEs decline from around two thirds in the late 1980s to less than a quarter today.
"SME house builders must be seen as a key component of the Government's housing strategy. This means a renewed focus on granting planning permission to small sites. At the same time, the Government needs to press ahead with its proposed planning reforms, including a presumption in favour of small scale development. Planning departments also need to be adequately resourced so that they have the capacity to engage more closely with SME house builders and ensure planning applications are processed through the system as speedily and efficiently as they can be."
(LM/MH)
