UK housebuilders have faced a difficult few years, with their shares falling significantly over the past two years. This decline has been attributed to various factors, including increased costs and higher interest rates, according to Jo Rands, a portfolio manager at ClearBridge Investment. Despite a government pledge to construct 1.5 million homes in five years, only 200,000 homes were completed last year, with a mere 4,000 being council houses.
Experts highlight that the core of the housing crisis is insufficient construction. David Crosthwaite, chief economist of the Building Cost Information Service, notes that housebuilding peaked in 1970 with nearly 400,000 homes. Edward Clarke, an associate director at Lichfields UK, estimates that the UK needs to build two million more homes to address the backlog, potentially even more to align with continental European homes-to-population ratios.
The planning system is identified as a major obstacle to increasing housing supply. Paul Smith, managing director at The Strategic Land Group, points out that the Competition and Markets Authority found the land market was not functioning correctly and that the planning system was a fundamental barrier. Applications for new homes now take a median of 349 days to be approved, more than three times longer than a decade ago. This lengthy and unpredictable process, coupled with costs of £150,000-£200,000 per application, deters developers.
Additional regulations also contribute to the challenges. Section 106 agreements have broadened in scope, with local police forces reportedly asking developers for contributions for items like laptops. The Future Homes Standard rules add an estimated £7,000 to £8,000 per home in building costs. The Building Safety Act, approved in 2022, has also increased safety requirements for tower blocks, which Adam Murray, CEO of Urbana, suggests has reduced the appetite for building flats.
Beyond planning, housebuilders contend with difficulties in acquiring land, particularly sites owned by multiple parties, and the expense of remediating former industrial land. A significant skills shortage further exacerbates the issue, leading to longer completion times and stalled projects, according to James Anderson, a construction supply-chain expert at Catnic. The National Audit Office estimates that 755,000 workers are needed to meet housebuilding targets.