UK Housebuilders Face Decade-Low Construction Levels Amidst Housing Crisis

The UK's listed housebuilders are on track to complete the fewest new homes for sale in a decade, as a combination of stringent planning regulations and elevated mortgage rates stifle the market, reports the Financial Times. This trend emerges despite the Labour government's ambitious efforts to stimulate housing construction.

Financial Times analysis of data from seven leading UK housebuilders, compiled by Investec, indicates that the sector (excluding Vistry, which focuses on affordable and rental housing) is projected to complete just over 50,000 homes in 2024. This represents the lowest output since 2013.

"The listed players are broadly delivering their lowest completions for a decade," notes Aynsley Lammin, analyst at Investec, to the Financial Times. He attributes this downturn to a confluence of factors, including high mortgage rates that pose significant affordability challenges, particularly for first-time buyers.

This contraction in housebuilding presents a formidable challenge for Prime Minister Keir Starmer's Labour government, which has embarked on extensive planning reforms aimed at boosting new home construction to its highest levels in over half a century. Despite the construction sector's initial welcome of these reforms, shares in UK housebuilders have plummeted by approximately 20% since Labour's first Budget in October. This decline reflects concerns about resurgent inflation and the potential for protracted high borrowing costs.

Major housebuilders such as Barratt, Persimmon, and Taylor Wimpey are particularly susceptible to interest rate fluctuations, given that most of their clientele rely on mortgages, many of whom are first-time buyers operating on tight budgets. Mortgage rates have remained stubbornly elevated this year, averaging above 5%, according to financial data provider Moneyfacts.

The overall decline in new home completions, encompassing seven listed housebuilders (including Bellway, Berkeley, Crest Nicholson, and MJ Gleeson), is part of a broader contraction in housing construction. Data tracking the overall supply of new dwellings reveals a 5% reduction in homes completed during the first nine months of 2024 compared to the same period in 2023.

The industry is on track to complete approximately 220,000 new homes this year, according to estate agent Savills, falling significantly short of Labour's ambitious target of 1.5 million new homes over five years.

The decline in sales has prompted housebuilders to reduce land purchases, curtail new site openings, and limit output, all in an effort to prevent price reductions for their homes.

While some industry figures express hope for a gradual recovery in 2025, contingent on a decline in mortgage rates and the eventual efficacy of Labour's pro-building reforms, the construction sector faces formidable hurdles. Analysts and industry groups warn that Labour's ambitious housing targets are unlikely to be met unless effective measures are implemented to enhance affordability for first-time buyers and to significantly increase funding for affordable housing.

Despite these challenges, some industry executives remain optimistic. "I get fed up with the moaners," stated Bellway chief executive Jason Honeyman to the Financial Times. "People wanted to complain about the old government, who didn’t want any new homes. And now they want to complain about the new government, who want to build too many," he continued. "It’s ambitious…The housebuilding sector takes a while to start building again."