Luke Brafield is partner at Fisher German
2025 is already shaping up to be a pivotal year of change and opportunity in housebuilding, brimming with potential yet with challenges. As the sector braces for a wave of reforms amidst a backdrop of stagnant growth, those involved must navigate a complex landscape.
The first obstacle to overcome is the dwindling pipeline of homes which have been granted planning permission, now at its lowest level in a decade. The Home Builders Federation (HBF) reports a 10% drop in the number of approved units during the last quarter for 2024, following a 15% decline from the previous year. These figures are far from what the Labour government wants to see as it aims to deliver 1.5 million homes this parliamentary term
Changes to the National Planning Policy Framework (NPPF) announced by the government in December, new requirements for Local Planning Authorities, changes to green belt and the introduction of grey belt are expected to boost planning permissions. However, these will take time to impact the immediate land market due to lengthy approval processes. The new NPPF and its associated planning guidance will increase housing delivery, but whether Labour’s ambitious new homes delivery target will be achieved on time remains to be seen.
There is also the availability of land with the benefit of planning permission to consider since this is impacting the reported pipelines for listed house builders. Taylor Wimpey plc and Persimmon plc provided trading results for the full year to December 31, 2024, which emphasises this.
The short-term pipeline at Taylor Wimpey was down from 80k to 79k, with around 50% benefitting from detailed planning permission, while its strategic pipeline had fallen from c.142k to 136k plots, and completions for the year had decreased from 10,848 to 10,593.
The owned or under control plots at Persimmon stood at 82,100 at the year end, down from 82,235 from the previous year. There was brighter news that completions were up from 9,922 to 10,664, but that figure was down from 16,449 in 2018
Anecdotally, housebuilders are reporting dwindling pipelines impacted by the availability of sites with planning permission and delays securing permission on sites under control. Housebuilders have remained active in the strategic land market, investing in promotion opportunities, so this is a positive to help meet the 1.5 million homes national target.
The UK’s economic stability is another significant challenge, with inflation predicted to remain stubbornly high at 3% in January with a potential for an increase to 3.5% in H2 2025. This means the Bank of England is likely to proceed cautiously with interest rate cuts, impacting mortgage products for house purchasers and housebuilders’ ability to construct new homes.
UK borrowing costs have risen rapidly and are at their highest level since the financial crisis in 2008, which will affect the government’s tax policy and spending plans. Yields on gilets have risen to 4.82% for a ten-year debt or 5.38% for a thirty-year debt. This may lead to further tax rises that will dampen economic growth.
Sentiment around mortgage product interest rate pricing has reduced to around 60% for a rate cut in February, which is down from 66%, but it is still relatively optimistic despite economic uncertainty.
Nationwide reported a strong end to 2024, saying there was a 0.7% increase in average UK house prices for December 2024, which contributed to an annual increase of 4.7%.
House prices remained resilient in 2024 despite rising borrowing costs with the average 75% Loan To Value mortgage demanding a mortgage rate of 4.5%, three times the average in late 2021 before the Bank of England started to raise interest rates.
Looking ahead to 2025, Nationwide predict a spike in activity for the first quarter of the year underpinned by buyers accelerating purchasers ahead of changes to Stamp Duty Land Tax.
Although interest rates are predicted to fall, wider economic and political uncertainty will influence the level of the reduction, and that is hard to predict.
The demand for affordable housing is at an all-time high, but funding remains insufficient. The value registered providers are willing to pay for affordable dwellings under Section 106 Agreements has decreased, impacting the viability and deliverability of schemes. This has, in part, been impacted by registered providers diverting their attention to Homes England grants for non-Section 106 affordable housing schemes.
The Chancellor announced an additional £500m for the Affordable Homes Programme at the Budget in October 2024. This was not deemed sufficient by many, but it was a step in the right direction and showed that housing is high on the government’s agenda, and it is hoped that there will be a further announcement on funding in April 2025 to assist with unlocking this issue.
Government policies are extending building timelines. Requirements for Biodiversity Net Gain and stricter building regulations are increasing design and construction costs. Uncertainty around the Future Homes Standards, if introduced in 2025, could further impact land values.
Finally, as in many industries, the skills shortage is a critical issue. Research by the HBF shows that for every 10,000 new homes to be delivered, around 30,000 new construction workers are needed. This shortage spans all stages of development, from planning to on-site trades.
Housebuilders face a challenging road ahead in 2025 and beyond. Meeting the government’s pledge to build 1.5 million new homes requires overcoming numerous obstacles and ensuring all pieces of the puzzle fit together.
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