Optimistic about the outlook for the UK’s housebuilding sector in 2025?

With housing completions expected to top 180k in 2024, the UK would need to roughly double output to get anywhere near the Government’s target of 1.5 million houses in the next 5 years.

The theory behind the target holds – historically, strong levels of housebuilding have generated economic growth across the supply chain, employing 2.58 million at its height in 2008 (currently 2.06 million) (source: CPA).

But although 1.5 million new houses is repeatedly branded unachievable by many key industry figures, that doesn’t mean the industry wasn’t feeling optimistic, before the budget at least. Growth of between 5% and 10% was expected in 2025 (source: CPA), driven by demand-side impacts of actual lower mortgage rates as well as anticipation of further interest rate cuts.

Since the Chancellor’s budget however, economic output has slowed. Inflation is once again on an upward trajectory, predicted interest rates cuts are no longer looking so likely, and many businesses in the sector, already cash constrained, are reported to be looking for savings in the face of significant National Insurance cost rises. This will all impact demand for new homes. On the supply side, planning challenges remain, as do skills shortages and a drop in offers for S106 affordable homes despite an increase in quotas of such provision to between 40% and 50%. So only time will tell whether interest in now-permitted ‘grey belt’ development opportunities will match the government’s ambitions.

BUT…

As MD of an SME operating in the housebuilding supply chain, I started this article with the intention of writing about grounds for optimism in the housing sector in 2025.

Is planning an issue? In some respects, yes; it’s taking longer and costing more, which impacts smaller housebuilders disproportionately. But 1.1 million already-permitted homes have yet to be built (source: Planning Portal Market Index), not including any of the new developments the government wants building on the ‘grey belt’. So yes, longer term planning issues still need to be addressed, but this shouldn’t impact short to medium term build programmes.

The challenges that the sector has seen since 2020 (and which have driven so many out of business) have resulted in an industry that is more on top of its cost base than ever before, despite recent tax rises. We’re all running lean, efficient operations, often in the face of ongoing cashflow constraints, having learnt the value of flexibility in our business planning.

Speaking for Scotts Timber Engineering, we’ve probably never been as efficient in how we resource and deliver to our customer base across the country. Our customers, from one-man bands to national housebuilders, are equally focused running tight ships, scaling as needed to deliver new homes wherever people are ready to buy them.

Only time will tell the extent to which demand for new homes will overcome economic worries. Whether the government will increase affordable and social housing grants. We may need to get past April for people to feel more secure after the impact of NI rises on private sector employment and salary levels, but fundamentally we all know that the country needs vast numbers of new homes. And our industry is ready to build. We many be unlikely to meet the 1.5 million Government target, but we believe there are grounds for optimism and growth, albeit modest in comparison.

James Scott
MD
Scotts Timber Engineering