16 COMMENT
same time last year. Growth in delivery appears to be restricted to the major housebuilders with the 10 largest builders enjoying a third consecutive quarter of growth in annual completions, while SMEs saw completions fall. Further positive news was reported by Savills in relation to planning, with 225,000 homes gaining full planning permission in the past year which, although representing a small drop, still meant that consent numbers grew by around 25% on a quarterly basis. In overall terms the update struck a cautiously optimistic note – it can see the green shoots of recovery, but it wants to see further evidence before declaring a full-scale recovery is in progress.
CHALLENGING TIMES STILL WITH US In contrast a more pessimistic note was struck by S&P Global who reported that activity in the UK construction sector fell in July at its sharpest rate since the height of the Covid pandemic amid a collapse in housebuilding, underscoring the challenge facing the Government and its ambition to build 1.5 million new homes during the life of this Parliament. The fi gures from S&P lobal Market Intelligence showed activity fell in July at the steepest pace since May 2020. The data provider said a sharp drop in residential building pulled down its monthly purchasing managers index (PMI) for the UK construction sector as a whole, alongside a plunge in civil engineering and a softer downturn in commercial property. Compiled from a survey of about 150 construction companies, the survey is closely monitored by analysts at the Treasury, the Bank of England and across the City for early signs of good or bad health from the economy.
Joe Hayes, a principal economist at S&P Global Market Intelligence, said: “Forward looking indicators from the survey imply that UK constructors are preparing for challenging times ahead. Anecdotally, companies reported a lack of tender opportunities and a hesitancy from customers to commit to projects.” The headline UK construction PMI fell from 48.8 in June to 44.3 in July, on a scale where a reading of 50.0 separates growth from contraction. The housing activity index, a subcomponent of the overall score, fell from 50.7 in June to 45.3 in July. Taken together, the Glenigan Index, the Savills Update and the S&P Global PMI present different snapshots of the same housing market. Perhaps a balanced interpretation would be that progress is slowly gathering pace, albeit unevenly across sectors and regions. Continuing shortages of labour, a stubbornly high
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infl ation rate and tax rises in the next budget could all undermine a fragile looking recovery. Matt Swannell, the chief economic adviser to the EY Item Club, summarised the confl icting drivers of change, by saying: “The outlook for housebuilding in particular is mixed as the effects of planning reforms are counter balanced by elevated construction costs and labour market shortages.” An optimistic note was subsequently struck by the fi nancial markets. Following a cut in the Bank of England base rate, average UK mortgage rates fell, with the fi ve-year fi xed rate mortgage dropping below 5% for the fi rst time since the 3 May 2023. Lenders are also offering more choice, with 7,031 residential mortgage products available, which was up from 6,992 on the previous working day Adam French, head of news at
Moneyfactscompare.co.uk, said the news “will be more welcome news for borrowers”. Moneyfacts described it as a “symbolic turning point” for homebuyers and it showed lenders are “competing more aggressively”. Commenting on the fi ve-year mortgage rate drop, French said: “The slow and steady fall in the cost of borrowing over the last year combined with strong average earnings growth has helped to marginally boost affordability for many homeowners and homebuyers.”
SOCIAL SECTOR NEEDS BOOST In previous periods of sustained growth in housebuilding, councils have played a signifi cant part in delivering new homes. At present they are not well placed to meet this challenge as their budgets are being strained to the limit by the staggeringly high costs of providing temporary accommodation for homeless households. Local councils are facing huge diffi culties in tackling the growing pressures of record levels of homelessness and waiting lists which are refusing to come down. At the same time their housing stock is constantly being eroded by tenants exercising the Right to Buy. While the
Government is honouring its manifesto commitments to make Right to Buy far less attractive to tenants wanting to buy their homes, the initial curbs have inadvertently stimulated a stampede of purchases from tenants rushing to beat the reductions in discounts that are being put in place. In fact this could be an exceptional year for RTB sales with as many as 18,500 council homes being bought by tenants (up from 7,494 last year), according to the thinktank Common Wealth. This year’s sales fi gure looks like it will dwarf the number of new council houses that were built in 2024/25 which stood at just 2,260. But sales have outstripped construction fi gures in every year since 1980, when Margaret Thatcher introduced the RTB. Since then over two million council homes have been sold and an estimated 41% of them are now being privately rented at much higher market rents than in the social rented sector and with less secure tenancies for the residents. To counter this trend, the Government has reduced the value of RTB discounts in England back to their pre- 2012 levels by capping them at between £16,000 and £38,000, down from maximum values of £102,400 (rest of the country) and £136,400 in London. Earlier this summer it announced further plans to cap discounts at a maximum of 15% and to exempt new council homes from the Right to Buy altogether for 35 years. Ministers will hope that their reforms to the planning system will be more successful in meeting the desired result than the initial response to cutting back on council house sales through the Right to Buy. This will require several more quarters of sustained growth in planning consents, as well as new house starts, completions and sales. There are signs that confi dence is slowly returning to the housing sector, but it is still quite fragile with particular concerns over the availability and cost of labour, as well as buyers’ willingness to take out mortgages. Provided the economy can sustain lower mortgage rates and deliver confi dence to a market long plagued by uncertainty, there is hope that growth can be delivered. We also need to get the social housing development sector back on its feet and actively involved in building new homes, along with the SMEs who for so long were the backbone of the house building sector but have been particularly hard hit by the slowdown and are now battling to stay afl oat. The answer to both might be in unlocking smaller residential sites, with quicker, streamlined planning processes. Let’s hope that Labour’s commitment to the new build sector can also fi nd a way to solve this particular problem.
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