Open Editor's Digest for free
Rula Khalaf, editor of the Financial Times, picks her favorite stories in this weekly newsletter.
UK listed housebuilders are on track to build the fewest new homes for sale in a decade, as planning rules and high mortgage rates hold back the market despite the new Labor government's push to increase housing supply.
The sector, excluding Vestry, which focuses on affordable housing and rentals, is expected to complete just over 50,000 homes this year, the lowest level of production since 2013, according to a Financial Times analysis of figures for seven companies compiled by Investec.
“The listed players are broadly at their lowest level of achievement in a decade,” said Ainsley Lamin, an analyst at Investec. He said “demand and supply factors” — including higher mortgage rates that make purchasing more difficult for first-time buyers — were behind the recession.
The contraction in housebuilding poses a major challenge to Prime Minister Sir Keir Starmer's Labor government, which has launched a sweeping campaign Planning reforms In an effort to boost new home construction to the highest level in over 50 years.
The reforms have been welcomed by the construction sector but UK stocks Home builders have fallen By about a fifth since the Labor government's first budget in October, raising fears that inflation will return and borrowing costs will remain high for longer.
Large housebuilders such as Barratt, Persimmon and Taylor Wimpey are very sensitive to interest rates because most of their clients rely on mortgages, and many are first-time buyers stretching their budgets to the limit.
Mortgage rates have remained higher than expected this year, above 5 percent on average, according to financial information provider Moneyfacts.
Production at the seven listed housebuilders fell by 3 percent this year. It follows a fall of a fifth in 2023 following the Conservatives' mini-budget in September 2022, which sent mortgage rates higher and put pressure on the property market.
The decline in new home completions by these companies – which also include Bellway, Berkeley, Crest Nicholson and MG Gleason – is part of a broader contraction in housing production. Data tracking total new housing supply showed a 5 percent decline in completed homes in the first nine months of 2024, compared to the same period the previous year.
The industry is on track to finish about 220,000 new homes this year, according to property developer Savills, far short of the numbers needed to meet Labour's target of 1.5 million homes over five years.
As sales declined, homebuilders pulled back on buying land and opening new sites, cutting back on their production and trying to avoid having to. Reducing the prices of their homes.
Many in the sector are hoping that 2025 will be the start of a recovery, with mortgage rates expected to gradually fall and Labour's pro-building reforms potentially starting to bear fruit.
“The 2024 Labor government is the most pro-home building government we can remember,” RBC analyst Anthony Codling said. “UK housebuilders have been oversold since the Budget.”
Analysts and industry groups have warned that Labor is likely to miss its target of building 1.5 million new homes unless it can find ways to help more distressed first-time buyers buy a home – and provide much greater funding for affordable housing.
But some industry executives remain optimistic. “I'm tired of the complainers,” Bellway CEO Jason Honeyman told the Financial Times in an October results call.
“People wanted to complain about the old government, which didn't want any new homes. Now they want to complain about the new government, which wants to create too many.” “It's ambitious. . . “It takes some time for the home building sector to start building again.”
