There is a housing crisis in the UK. The lack of housing supply combined with the significant demand for it has continued to sustain house prices. In 2023, full-time employees in England and Wales could expect to spend around 8.3 and 6.1 times their annual earnings buying a home. [1] As a result, the previous UK government led by the conservatives set a target of 300,000 new homes built per year. [2] Unfortunately, this target was never met, with only 234,400 homes built in 2022-2023 and 221,070 in 2023-2024 [3]. The new Labour government have also committed to what amounts to the same target. [4] How do they plan to achieve this? Planning reform and council housing. This sounds all well and good. But what do developers and the construction industry say?
Figure 1: Construction of new housing in the UK.
What is the opinion of developers in the construction industry?
Barratt Developments, the UK’s largest housebuilder, built fewer homes in the year to June 2024 than in the previous year.
“…a painful read for investors…With a new government now in power, there’s increased hope that some of the issues hindering housebuilders, like planning regulations, can be fixed …But further easing of mortgage rates will be necessary for activity to pick up significantly,” says Aarin Chiekrie, Equity Analyst at Hargreaves Lansdown, regarding Barratt’s numbers. [5]
In terms of the construction industry, the future looks a little more promising but subdued. The Construction Skills Network (CSN) Outlook report for 2024-2028 [6] by the Construction Industry Training Board (CITB) was produced on the 15th of May 2024. The report states that over the forecast period, there is a predicted Average Annual Output Growth (AAGR) of 2.4%. To meet this relatively modest increase, the report also states that 50,300 extra workers will also be required each year. This has not been met in previous years; in fact, construction employment is expected to have fallen by 1.5% in 2024.
According to the Home Builders Federation (HBR), it is predicted that for every additional 10,000 homes built, 30,000 new recruits across 12 trades will be required [7]. In 2023-2024, the 300,000 target for new homes built was missed by approximately 80,000. Based on these estimates, 240,000 new construction workers will be required to meet this shortfall. However, this figure may be conservative, given the CSN outlook report expects 251,000 extra workers will be required by 2028 just to meet an increase of 2.4% in output each year.
In terms of costs, the Building Cost Information Service (BCIS) building forecast [8] states that, between Q4 2024 and Q4 2029, “building costs will increase by 17% over the next five years, while tender prices will rise by 19% over the same period, according to our latest construction forecast data. New work output, which has been contracting since mid-2023, is expected to grow by 21% over the forecast period.”
Gleeds UK construction market report for Q4 2024 [9] presented a market sentiment outlook of 56% with 0% being a very negative outlook and 100% a very positive outlook. “This score is the result of a comprehensive evaluation of industry press and social media, using natural language processing (NLP) techniques to assess industry sentiment and identify key topics. Our artificial intelligence model synthesises this data to generate an overall reading.” [10] Furthermore, respondents on the forecast for tender opportunities in 2025 compared to 2024, resulted in 2% significantly more, 36% more, 46% the same, 15% fewer, and 1% significantly fewer.
Conclusions
The outlook for the construction industry appears to be mixed. With the UK Labour government making bold promises regarding new homes and wide sweeping planning reform, but this expectation isn’t exactly matched by investors and the construction industry. One option that may have been overlooked is building up existing urban areas [11] with tall buildings rather than trying to create new towns or building in rural locations. Council housing saw great success many decades ago but has since been largely forgotten by successive governments. It is yet to be seen if the housing crisis will transform into a housing boom.
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References
[1] https://www.ons.gov.uk/peoplepopulationandcommunity/housing/bulletins/housingaffordabilityinenglandandwales/2023
[2] https://www.channel4.com/news/factcheck/factcheck-have-the-conservatives-met-their-house-building-targets-in-england
[3] https://www.gov.uk/government/statistics/housing-supply-net-additional-dwellings-england-2023-to-2024/housing-supply-net-additional-dwellings-england-2023-to-2024
[4] https://www.bbc.co.uk/news/articles/cvgw7x4y5rzo
[5] https://www.bbc.co.uk/news/articles/c8rx23jdkd5o
[6] https://www.citb.co.uk/about-citb/construction-industry-research-reports/construction-skills-network-csn/
[7] https://www.bbc.co.uk/news/articles/c8rx23jdkd5o
[8] https://bcis.co.uk/news/bcis-construction-industry-forecast/
[9] https://focus.gleeds.com/uk-construction-market-report-4q-2024/
[10] https://www.gleeds.com/en/insights-reports/market-reports/uk-construction-market-report-4q-2024/
[11] https://www.cambridgeindependent.co.uk/news/gove-s-150-000-homes-vision-demolished-as-government-deman-9381124/
Figure 1 image accreditation: New Homes (2015) from Wikicommons Media. Last accessed on 27th January 2025. Available at: https://commons.wikimedia.org/wiki/File:New_homes_in_Selling_-_geograph.org.uk_-_4644258.jpg
