51ĀŅĀ×

Low starts, high stakes

Both buy-side and supply-side reform is needed to help unlock delivery as well as demand.

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4 mins read

Speak to anyone involved in the delivery of private homes across the UK over the last few years and inevitably the conversation will turn to viability. With construction and debt costs much higher, the assumptions that underwrote the original appraisals no longer make sense and require some major changes
 
The situation is further complicated by a litany of additional regulation and cost, as well as delays due to supply chain issues, and regulatory approvals. Issues around nutrient and water neutrality continue to hold up development in a number of regions, while planning delays and a lack of bids from Registered Providers for Section 106 Affordable Housing units remain constant problems. In urban centres, the Gateway process for approvals of high-rise residential buildings has, quite rightly, grabbed headlines given how many projects are stuck in the queue.
 
Progress is being made to address some of these issues - recent leadership and processes announced by the Government, for example, will hopefully ease the current blockages – but for others, change has been limited, slow or is still awaited. We’ve written previously about the impact all of this has had on planning permissions, which have continued to fall.

Nowhere are these challenges more apparent than in London where new data from development data consultancy underscores the severity of the situation. There were 731 private housing starts across the whole of the UK capital in the second quarter of this year, the lowest number on record. In the first six months, work started on just 2,158 private units.

It is worth bearing in mind that the annual target for new home completions in London is 88,000 a year, or 22,000 per quarter.  In the broader UK context, the capital is expected to deliver c.30% of the Government’s overall 1.5 million target over the next five years.

While completions have not yet fallen back, the future supply pipeline looks thin: only 9,100 private homes are expected to complete in the two years from 2027 to 2028 based on the schemes currently on site, Molior notes. Future completions will increase because more schemes will inevitably start construction. But time is tight.
 
As this shortage is unlikely to reduce selling prices or rents, there could be significant opportunity for developers able to get building now.
 
More broadly, the numbers reflect a troubling disconnect at a UK level between the policy backdrop and the broader economic realities currently faced by developers and purchasers. For the latter, lower inflation and mortgage costs will help to ease the situation - although a boom is a long way away. For more on how housing market activity is likely to develop through the second half of 2025, I highly recommend listening to 51ĀŅĀ×'s Tom Bill and financial market strategist Michael Brown from Pepperstone’s recent conversation. Brown thinks we could see as many as four cuts should inflation continue to ease and the labour market continues to . That would prompt mortgage rates to ease a little more and would support a fuller recovery through the autumn. , or wherever you get your podcasts.

What can be done?

On the development front it is clear that immediate action is needed to relieve the pressure, and both buy-side and supply-side reform will help unlock delivery as well as demand, not just in London but also in regional cities.
 
Renewed support for first-time buyers, reformation of stamp duty and incentives to those who buy off-plan will help get the market moving, acknowledging the strategically important role it plays in unlocking and funding the delivery of high density, high risk, speculative development.
 
With an increase in sales driven by demand-side initiatives, developers will have the confidence to start building again at pace. Removing the roadblocks that add risk and hinder viability should be the top priority of our politicians. This means continuing to address the intense bureaucracy of the planning system to allow for flexibility to respond to changing market conditions.
 
While the Government’s efforts over the past year have laid some important groundwork for increased housing delivery, particularly in reforms to planning policy, bold action is still needed. The Government must now go further and faster if it is to achieve its housing ambitions.

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