November 27th, 2023

From Housing Starts to Rental Surges: A Comprehensive Look at the UK Property Market- Part 4, Housing Starts and Building Cost Inflation

By Jonathan Witter, Development Monitoring Director at Assetz Capital

The economic backdrop has continued to throw challenges which have been well documented. The UK major housebuilders have scaled back their new build programmes and SME developers also facing their own challenges. However, faced with a shortage of an estimated 4.3 million homes (Centre for Cities), the bourgeoning demand for housing in the UK continues to provide opportunities both geographically and by sectors such as emerging build-to-rent. Let’s take a closer look…

Housing Starts Continue Despite Rising Interest Rates: What’s Driving Growth?

In Q3 the successive interest rate rises have dampened affordability when considering the knock on effect of mortgage offers. The number of housing starts during the 3 months up to July at £1,989m, slipped nationally but still remained 15% up on the same time a year ago.  Both London and the North West showed some increase in their housing starts, whilst the South East remained stable.

Planning approvals in London and the East of England also weakened from the previous 3 months but the number of detailed consents in the North West, South East and the South West actually increased. The number of new planning consents in Scotland remained stable.

Significantly, we have seen the national housebuilders such as Taylor Wimpey, Barratt Developments and Berkeley, scale back on housing output following a perceived increase in risk due to a combination of factors including concerns surrounding economic uncertainty, economic stagflation and a significant increase in the cost of building, which heavily impacted back in 2022. Understandably, for these players very significant investment is required to pull together the generally large sites that require substantial infrastructure and planning costs.

However, the landscape may be different for SME developers who can often act more dynamically by firstly quickly identifying and acquiring sites and then instigating the development process.

Building materials prices fell in July by 1.1% according to the ONS Building Materials and Components Statistics, which shows consecutive months of declining prices. This decline was driven by a sharp decline in key products such as structural steel, concrete bars and timber costs. This will have been a welcome relief to contractors and developers. Nevertheless, there was also a widespread decline in sales of key materials across the sector. Despite this, there was a 1.6% increase in the volume of output. Overall, many in the industry expect materials inflation to be around 4% for 2023, a far cry from 2022.

If you would like to discuss your development plans for next year or any topic further, please call me on 07786 628913 or email [email protected] to see how we can help.