Business Environment Profiles - United Kingdom
Published: 09 April 2024
Housing starts
202329 Units
1.5 %
This report analyses time-series data on the number of new dwelling starts in the United Kingdom for private enterprises, housing associations and local authorities. The data, formerly produced by the previously-named Ministry of Housing, Communities and Local Government (MHCLG) – the Department for Levelling Up, Housing and Communities (DLUHC) as of September 2021 - is sourced from the Office for National Statistics (ONS) and forecast figures are produced by IBISWorld. The data is presented in fiscal years (i.e., April-March).
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Over the five-year period through 2024-25, the total number of housing starts in the United Kingdom is forecast to decrease at a compound annual rate of 1.5%. In the post-referendum, pre-pandemic era, growth in housing starts proved somewhat uninspiring - they increased by 1.3% and 3.4% in 2017-18 and 2018-19 respectively, before reverting into decline in 2019-20 (-8.1%). While six consecutive years of growth in housing starts through 2018-19 was welcomed, industry commentators cited a range of potential factors causing a slowdown, and an eventual indicative decline, in housing starts - these included a drop in permitted development rights (i.e., developments which do not require application for planning approval), and lacklustre new investment amid then-mounting uncertainty surrounding the UK's delayed withdrawal from the EU bloc. Commentators also warned that the rapid slowdown was a concern in reaching the government's target of 300,000 new homes per annum.
In 2020-21, the total volume of new housing starts is estimated to have fallen by a further 9.2% year-on-year. The pandemic and exogeneous economic shock caused prevalent market disruption, typified by temporary closures across global supply chains and below-capacity operations in business markets. Relative to housing starts, Spring 2020 lockdown measures in particular, brought in by the UK government to combat the spread of the virus, and depleted business market activity had a severe implication on developers' and homebuilders' propensity to kick-start new build projects from the tail-end of the 2019-20 fiscal year and extending through early-2020-21. As noted by the Construction Products Association, with public health restrictions being relaxed on an ad hoc basis - notwithstanding the intermittent reinstatement of lockdown restrictions - and as contractors returned to work on site in May 2020 and thereafter, the focus has been "on partially completed developments rather than new starts as house builders are expected to be very cautious given uncertainty regarding demand". Accordingly, low sentiment, coupled with cashflow concerns, and despite the release of some pent-up demand, initially limited new investment, ultimately causing housing start volumes to fall. Meanwhile, supply chain issues with regards to materials procurement across the construction sector – builders' merchants have extended lead times – prevented contractors from accelerating pipeline developments, pressuring year-on-year new housing start volumes.
In 2021-22, however, the total volume of UK housing starts is estimated to have rebounded by 30.1% on an annual basis and recover to 221,370 units, in line with the pre-pandemic level. With the economy reopening and borrowing rates remaining low against historical standards - the Bank of England announced an emergency cut to the official bank rate to new record low of 0.1% on 19 March 2020, having held it at this level until 15 December 2021 (0.25%) – property investors and development financiers moved to release working capital and capitalise on a temporarily favourable backdrop for investment. This release of pent-up demand and efforts to restore building pipelines to a more sustainable level – in other words, clear a backlog of work before entering a new economic cycle - naturally inflated the level of housing starts. Considering regional development and acceleration of the social housing stock remain at the forefront of recent policy, and as housebuilding activity is been recognised as a key economic enabler, the speed of recovery in housing starts to a pre-pandemic level was hasty.
Towards the tail-end of 2021-22 and heading into 2022-23, however, housing start volumes began to slow, and overall, in 2022-23 are forecast to decline by 10.9% on an annual basis, falling back down to a presumably more sustainable level (197,333 units), closer to the level seen pre pandemic. Supply-side factors in particular have hampered homebuilders' and property developers' capacity to kick-start and or accelerate new ventures. Two years on from the onset of the pandemic and supply chain disruption has ensued and intensified, with builders' merchants reporting shortages of supplies, in turn raising supply chain prices and resultant build costs – not least the difficulty in obtaining relevant materials having slowed development pipelines, but exponential growth in build costs have become an increasing concern for homebuilders and project financiers.
In addition to pandemic-induced supply chain disruption, the trickle-down impact of the Russia-Ukraine conflict on supply chains, the flow of trade and exponential price inflation. In addition to the raised cost of investment – the BoE increased the base interest rate as high as 5.25% in 2023 in response to inflationary pressures which have inadvertently limited market activity. Hinted at by the BoE, a prospective recessionary period, with potential stagflation a concern, threatens activity in the homebuilding market further. The number of housing starts is set to rise by 11.2% in 2024-25.
If supply chain disruption and inflationary pressures continue for the near-term, housing starts ...
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