Government isn’t going to achieve its 1.5 million new homes in 5 years target (which the Chancellor repeated in the Budget), so what is likely?
Firms need to be able to plan and invest now in skills and capacity for 5 years’ time. And, of course, no one likes the economist's answer of ‘it depends’.
We won’t have the revised National Planning Policy Framework and the Housing Strategy until next year and won’t see how effective changes will be in practice until at least 2026. So, currently, a lack of planning capacity, water and nutrient neutrality and Biodiversity Net Gain still hinder house builders, especially smaller house builders. We also don’t know whether there will be developer interest in New Towns and building on the ‘grey belt’ given affordable housing requirements of 40% and 50%, respectively. Plus, we don’t know the extent to which the additional £500 million funding for affordable housing in the Budget will continue.
There were 234,400 net additional homes in 2022/23. Most major house builder completions have fallen 20-30% (Vistry being the obvious exception as ¾ of its completions are partnerships) since, although demand is now starting to return. Many smaller house builders have been hit worse than the majors but some have found demand has been sustained, depending on where they are. Housing Associations have cut house building and buying S106 homes whilst focusing on their existing stock (basic living conditions and fire safety remediation). So, house building is likely to fall to 180,370 this year (blue line).
For government to reach its 1.5 million homes over 5 years target, it would house building rates to double to 370,000 homes per year (red line), which is not going to happen as I highlighted when they initially announced the target.
House building growth of around 5-10% per year over the next few years is more realistic, as mortgage rates fall and demand recovers from a low base. Within that range, it depends on how optimistic you are about government enabling further private housing demand, government’s planning reforms and boosting social and affordable housing grant.
Government will do well if it can return house building to the levels it was in 2022/23 (green line), when there was a buoyant housing market, low interest rates, Help to Buy and Housing Associations were buying S106 homes. This requires a 32% rise in house building but would only see 1.09 million homes built over 5 years. A more optimistic scenario is that house building rises 43% in 5 years to more than 250,000 per year (blue line), higher than in at least the past 30 years, but even still this results in only 1.13 million homes over 5 years.
The new government has intent but it will find delivery is a lot more difficult than making announcements.
