In reference to the 'directory permissions' section in the answer from @artm (which I jusjust tested) .. I found:
root@server:~ # chmod 111 /home <- Does not work It doesn't allow the sftp connection to work on ubuntu with execute only permissions on everything i.e. 111.
I found that:
root@server:~ # chmod 555 /home Works with connection to sftp with the Read and Execute permissions i.e. 555. Not sure if debian vs other flavors are different, but that's what works on my ubuntu installs.