Just 29,281 new homes were registered to be built in the second quarter of 2024, less than half the amount you’d need to reach Labour’s target of construction 1.5 million new homes.
At that rate, only 600,000 homes would be built over the course of the five-year parliament.
This is a reduction from 37,861 in Q2 2023, figures released by the National House Building Council (NHBC).
Steve Wood, chief executive at NHBC, said:“we welcome the new government’s policy to deliver 1.5 million homes over the next five years, even if our new build registration numbers show there is a mountain to climb. Scaling up will take time but we can be encouraged by the government’s announcements on new home-buyer incentives, changes to the planning system and investment in infrastructure, including power grids, water supply and roads. In addition, more must be done to close the national skills gap. With an ageing workforce, a lack of skilled workers could seriously slow down Labour’s plans. Working closely with builders, contractors and government agencies, NHBC is rolling out a national network of training hubs to help upskill the next generation. We appeal to a diverse range of apprentices, training people from all backgrounds.”
Across the UK, nine out of 12 regions saw a rise in registrations in Q2 2024 compared to Q1 2024, with the biggest increases in Wales (+131%), East Midlands (+98%) and North West and Merseyside (+61%).
However, they were down in Northern Ireland and Isle of Man (-15%), Yorkshire and Humberside (-10%) and London (-10%) – suggesting these regions need to pick up the pace.
Wood added “meeting the government’s housing goals will require significant changes, commitment and investment across industry. We will be seeking to ensure new homes are built to the quality owners and occupiers should expect, and that this is maintained during any period of growth. This will pay dividends in the long-term, for the industry, for local communities and for home occupiers.”
Labour urged to use migration to tackle construction skills shortage
The Building Cost Information Service (BCIS) has called on Labour to address the skills shortage in the construction industry via migration in the short-term.
The government plans to boost vocational courses to upskill UK workers, rather than relying on overseas workers.
However Dr David Crosthwaite, chief economist at BCIS, said “the degree to which Labour can support migration in the short-term at least, in order to meet the immediate needs of the construction industry, while also working on the longer-term ambition to grow the skills base in the UK, remains to be seen. In an ideal world you would be able to deliver projects with a pool of locally available labour, but that hasn’t been the reality in the UK for some time, and it’s not what the industry has experienced throughout its history. The new government’s plan to boost vocational courses will take time to get workers on site and we’re short by hundreds of thousands, taking other sectors into consideration alongside housing. What the government decides to do with the Immigration Skills List and how it responds to the increasing reports of shortages in various sectors will be crucial.”
BCIS said the UK had lost the European labour it had relied on post-Brexit, while the domestic workforce had declined since the pandemic.
At the same time, demand has also reduced as the industry has been hit by successive shocks since Covid-19 – rampant inflation, sustained high borrowing costs, conflicts in eastern Europe and the Middle East.
Currently construction demand is down, but once it rises the lack of workers will become more apparent.
Part of Labour’s plan is also to ensure the minimum wage is a genuine living wage. It also said it will change the remit of the independent Low Pay Commission to account for the cost of living and remove age bands, so all adults are entitled to the same minimum wage.
BCIS points out this alone is probably not the incentive that will lure droves of young people into construction apprenticeships.
More specifically, Labour’s main method to boost further education and apprenticeships is to establish Skills England, a body that will bring together businesses, training providers and unions with national and local government to ensure there is a workforce to deliver the Industrial Strategy.
The new government has also promised to transform Further Education colleges into specialist Technical Excellence Colleges, which will work with businesses, trade unions and local government to provide better job opportunities. In place of the Apprenticeships Levy, it said it will create a flexible Growth and Skills Levy, with Skills England consulting on eligible courses to ensure qualifications offer value for money.
Dr Crosthwaite added “aligning the needs of the industry with education provision is sensible but there’s an unavoidable lag from getting more young people into apprenticeships to getting them on site. Even the establishment of Skills England is set to take place in phases over the next year. We absolutely need a long-term plan, but the government can’t ignore what’s right in front of them now.”
Ambitious Labour may hit homes target if rates come down
There is no doubt that the residential market in the UK slumped last year. Transactions were at around 1 million, whereas a typical year would tend to see around 1.2 million.
Because of high inflation, the Bank of England imposed a high base rate, resulting in high borrowing costs which inevitably slowed the market down. In addition, speculation around an upcoming election created uncertainty which naturally slowed market activity. Labour’s manifesto addressed this directly and claimed the number of homes being built was not high enough to stimulate the market. They were duly elected and will be under pressure to deliver on their promises.
Its nationwide target to build 300,000 homes a year is admirable – around 225,000 per year was averaged under the Conservatives who scrapped targets – Labour is well disposed toward building new towns, and potential reforms to planning may help affordable new sites to come forward more quickly.
But the market needs to be in the right place for these policies to have the desired effect.
Ultimately, the key to getting the market moving again is the cost of borrowing. There is a lot of pent-up demand from frustrated home movers who are finding current lending rates unaffordable or are simply holding tight for better deals to be offered by lenders.
Bold statements
If the much-anticipated drop in the Bank of England’s base rate materialises at the end of summer or early autumn, mortgage providers will be able to offer lower interest rates on their products, which will really stimulate market activity. In turn, a more active market will give housebuilders the confidence to step up their building programmes in the knowledge their homes will be in demand.
While financial policy from the Bank of England and lenders’ reaction to that is likely to be the biggest driver of market activity for the remainder of this year and into 2025, having a government determined to get the builders building will also help significantly.
As you might expect from a government that has been in opposition for the last 14 years, Labour have made bold statements around housing and planning which on the face of it may seem difficult to deliver. But if inflation falls and stays under control like forecasts are saying and the Bank of England feel confident enough to lower the base rate, the market should significantly improve in autumn before really bouncing back in 2025.
While Labour’s targets are ambitious, if the market plays ball, they might just achieve them.