The government’s decision to give up mandatory housing targets will harm SME developers and condemn another generation to ‘housing misery’, the National Federation of Builders (NFB) has warned.

The trade body said compulsory targets had allowed councils to concentrate on sites that could easily be delivered which had helped local SME builders. It claimed that making the targets negotiable would lead to councils concentrating on high-volume sites which take longer to happen.

Campaigners fear that housing secretary Michael Gove’s decision to scrap mandatory targets for local councils in rural and suburban areas puts at risk the government’s manifesto pledge to build 300,000 new homes a year.

Gove has watered down the government’s target to build 300,000 homes every year following a furious backlash from his own party’s MPs.

A Commons vote on the Levelling Up and Regeneration Bill had to be dropped last month after 60 Conservatives signed an amendment calling for the mandatory target to be abolished.

NFB’s housing and planning policy head, Rico Wojtulewicz, said: “We were led to believe that Mr Gove was appointed to ensure Robert Jenrick’s ambitious planning reforms were not lost, yet his first move was to water them down so much that disgruntled Conservative MPs were given a platform to further derail vital change.”

HBF communications director Steve Turner added: “If ministers fail to stand up to the anti-business and anti-development section of the Conservative party it is inevitable that housing supply will fall dramatically, costing hundreds of thousands of jobs, slashing gross domestic product and preventing even more people from accessing decent housing.”

His comments coincide with a public accounts committee, PAC, report revealing the government is likely to fall 32,000 homes short of its 2016 and 2021 affordable homes building programme.

MPs on PAC are critical of the department for levelling up and housing’s admission that it expects 157,000 new homes will be delivered in its 2021 programme rather than the original target of 180,000.

PAC chair Dame Meg Hillier MP said: “The human cost of inaction is already affecting thousands of households and now the building programme is hitting the challenges of increased building costs.”

The committee pointed out that in the London area construction costs inflation was running at 15% to 30%.

“This does not augur well for ‘generation rent’ or those in desperate need of genuinely affordable homes,” added Dame Hillier.

Brokers Hank Zarihs Associates said commercial mortgage lenders were concerned that this would make it more difficult for SMEs to build new homes in areas of acute housing shortage.

They claim that places within striking distance of London such as the home counties would be particularly affected.

Gove has said local decision-making sensitive to constraints and concerns will be given greater emphasis in the forthcoming national planning policy framework out for consultation later this month.

He has asked the Competition and Markets Authority to do a market study on housebuilding to ensure the sector is competitive and benefiting customers.