The government's pledge to deliver 1.5 million more homes over the next five years has been well publicised within the housing sector and beyond. This month, the Prime Minister has set out his "plan for change" with a more detailed housing strategy expected to be released next year. What changes might be needed to meet the government's ambitious target?
Government action to date
Shortly after being elected, the government set out to address the issues identified as road-blocks to achieving their commitment to housing delivery. Mandatory housing targets for all councils in England were introduced and the planning system was quickly identified as being under-resourced and in need of reform. A consultation on the reform of the National Planning Policy Framework ran until the end of September and pledges were made to recruit a significant number of new planning officers.
These are not, however, the only challenges facing the housing industry where there is a recognised need for reform. The financial pressures faced by local authorities are often in the press, and the focus of housing associations is shifting away from acquisition to managing their current stock. In addition, the sector also faces a significant skills shortage which, in turn, affects the rate of delivery. A common theme can be identified across these challenges and others; the real-term cost of housebuilding and the capability of those in the industry to face it.
How much does it cost to build a house?
The Housing Forum's recent report, The cost of building a house, examines in detail the rising costs of building new homes. The report's key findings indicate that the construction costs of an average-sized, three-bedroom semi-detached house in the easiest possible setting are estimated to be £133,000, rising to £251,700 when factors such as professional fees, finance costs, abnormal costs and building safety and environmental requirements are accounted for. The rising costs associated with building new homes are, of course, familiar to the housing industry, particularly in light of inflationary pressures over recent years, but they continue to have a negative effect on housing development.
One way this effect is felt is through falling land prices once anticipated construction costs are factored into overall land value. The Housing Forum's report highlights the fact that shrinking land prices will likely disincentivise landowners to sell, and any unexpected cost increases following acquisition can render schemes unviable. Consequently, not only do rising housebuilding costs pose a challenge for housebuilding itself, but they can also repress supply. Recent analysis shows this to be the case; statistics published by the Ministry of Housing, Communities and Local Government in November this year show that annual housing supply in England amounted to 221,070 net additional dwellings in 2023-2024, representing a 6% decrease on 2022-2023. Recent data suggests that, in the current year, this number is set to fall again to around 150,000.
The way forward
The environment for housing development poses a significant challenge for the government, with the current direction of travel contrasting with the government's stated plans in this area over the course of the current parliamentary term. So how is the government planning to change momentum on this issue?
The Prime Minister's "plan for change" now includes fast-tracking planning decisions on at least 150 major infrastructure projects alongside its housing delivery target. Whilst paying for the infrastructure required for new homes often contributes to housebuilding costs, having the necessary infrastructure in place to support new developments should, in combination with an improved planning system (as a result of the reforms mentioned above), help to prevent housebuilding costs from rising further by reducing delays and, therefore, the holistic cost base for each development. The Housing Forum's report has put forward numerous other measures for cost control, such as lowering borrowings costs associated with housing development (particularly for SMEs and public sector bodies), reconsidering the allocation of existing funding between housebuilders, other agencies and government bodies, and directing stimulus for newbuild homes to areas with weaker housing markets.
As 2024 draws to a close, it is encouraging to see the urgent need for housing being recognised as a political priority. At this stage, however, it remains to be seen whether this prioritisation will lead to material action in 2025 or beyond.
