The upcoming spring budget is poised to be a pivotal moment that could either reinvigorate the struggling housebuilding sector or deepen its woes. With mortgage rates on a downward trend and a general election on the horizon, the government’s next moves could be crucial in addressing the nation’s acute housing shortage.
A Rough Year for Housebuilders
The past year has been anything but easy for Britain’s housebuilders. A combination of challenging market conditions, including a significant drop in new home completions, plummeting profits, and falling share prices, has hit the sector hard. This downturn is attributed to a tough comparison with two strong previous years and weakened consumer confidence amidst a fragile economy.
The country’s top 10 housebuilders have seen a noticeable decline in productivity, completing just 71,000 homes in 2023, a step back from 85,000 the previous year. This slowdown jeopardises the government’s ambitious target of building 300,000 homes annually by the mid-2020s. Currently, the average yearly output stands at a mere 235,000 homes, far below the goal line.
The Housing Crisis Continues
Britain’s ongoing housing crisis, characterised by a severe lack of affordable homes, has been exacerbated by rising living costs, eroding the purchasing power of many Britons. Despite these challenges, house prices have continued to rise, with a 1.3% increase in January alone, bringing the typical home’s cost to £291,029.
However, there’s a glimmer of hope as mortgage rates begin to fall, sparking a revival in demand for existing properties. Improved mortgage availability and the increasing number of successful mortgage applications signal a potential turnaround for the sector, especially for secondhand homes.
Housebuilders’ Adaptive Strategies
In response to the downturn, housebuilders have tactically reduced the number of homes built to protect their profits, a move prompted by rising interest rates. This cautious approach has resulted in a significant decrease in construction starts and completions across various regions of the UK. Major players like Taylor Wimpey and Persimmon have expressed uncertainty about the market’s future, though they acknowledge signs of recovery as buyer interest picks up.
The Spring Budget
As the spring budget approaches, all eyes are on the government to unveil plans that could stimulate the housing market. Analysts suggest several potential measures, including planning system reforms, the introduction of a new Help to Buy scheme, reductions in stamp duty, and initiatives to bolster the construction workforce.
Reforming the planning system is seen as a critical, albeit politically sensitive, step towards easing the housing shortage. Critics argue that the current system is inefficient, hindered by staffing shortages and a lack of clear targets for homebuilding.
Moreover, the potential revival of Help to Buy or similar schemes could facilitate the construction of thousands of new homes, while a cut in stamp duty might stimulate the market further. Additionally, growing the construction workforce through enhanced apprenticeship funding could address the looming labor shortage in the industry.