New home delivery sees first significant drop in 2024

The supply of new homes has seen a notable fall for the first time in 2024. 221,500 new homes were completed in the twelve months to September 2024, according to Energy Performance Certificate (EPC) data. The drop comes after a period of stability between the end of 2023 and the middle of 2024, where annual supply stood at around 230,000. We expect new home completions to fall further still over the remaining quarter of the year and into 2025, due to the low number of construction starts over the past eighteen months.

Signs of modest recovery in construction activity

Nevertheless, there are signs of a nascent recovery in residential development activity. Construction starts across all tenures of housing saw a small increase in the year to Q3 2024, according to the National House Building Council (NHBC). Other indicators are also positive: after declining for much of the last two years, ONS figures on both construction output and brick deliveries appear to have bottomed out, while the S&P Global UK Construction PMI recorded the quickest growth in residential activity since September 2022.

The greatest improvement has been seen among larger housebuilders and on house-led developments. Smaller firms and flatted schemes saw a smaller increase, reflecting more challenging conditions for SMEs and in brownfield and urban markets. Annual starts across all sizes of builders remain down by between 25% to 44% year-on-year, suggesting any recovery has a long way to run to return to previous levels of construction.

Scarce planning permissions remain a limiting factor

Any potential increase in housebuilding will be limited by a chronic lack of planning permissions. Only around 235,000 new homes gained full planning consent in the twelve months to September 2024, according to estimates from Glenigan and the Home Builders Federation (HBF). This remains essentially unchanged since last quarter and well below policy aims of 300,000 new homes, and leaves little capacity for growth above the current level of delivery.

The figures also suggest that within five English regions, planning permission was granted for fewer homes in the year to September 2024 than were completed, implying a potential fall in future housing delivery in those areas. Only four regions permitted new homes in line with their housing need, according to the current iteration of the Standard Method, with one (the East Midlands) being very marginal.

The shortfall may grow further if the Government introduces a revised version of the Standard Method. This new approach focuses on growth in the housing stock rather than projected population growth, with an ultimate housing need figure of c. 380,000 homes per year (so as to create headroom that will ensure the previous target of 300,000 per annum is achieved or surpassed). Figure 1 shows housing delivery over the last twelve months compared to the current housing need figures, while Figure 2 does the same for the proposed need figure. The difference is considerable: under the new method, much more of the South, the West Midlands and suburban North, currently around 25% below target or less, would find themselves being 50% below or more, with a requirement to increase housing delivery very significantly.

221,452 new homes were built in the twelve months to Q3 2024, according to EPC data. This marks a small drop of 4% from Q2’s annualised completions, and 7% lower than the equivalent figure in Q3 2023.

Around 235,000 new homes gained full planning consent in the twelve months to Q3 2024, according to initial estimates from Glenigan and the HBF. With only 6% more homes gaining consent than are currently being delivered, new home supply remains constricted. Given a proportion of consented homes are never built due to development issues, the effective pipeline of new homes may already be in decline.

Five English regions – including all of Southern and Eastern England – built fewer homes in the twelve months to Q3 2024 than the annual minimum called for by the current iteration of the Standard Method.

By comparing homes granted consent to new home delivery over the twelve month period, we can roughly gauge whether supply is growing or falling. Only two regions, London and the North West, granted consent for substantially more homes than were delivered over the period, with the rest of the South likely to see supply staying the same and delivery in the Midlands and North set to fall.

The NHBC starts and completions data does not capture all new homes being built, but does give an update on the direction of travel for new build delivery. 

Construction starts across all tenures saw a rebound in Q3 2024, with total annualised starts rising 16% compared to Q2. Nevertheless, they remain more than a third below the equivalent level last year. 

Completions continue to fall across private and overall housebuilding. More positively, alternative delivery remains steady, with annualised quarterly completions unchanged from Q2.

The number of new homes completed by the largest housebuilders continued to decline in Q3 2024, while delivery from the small builders remained largely stable. 

Annualised new home completions by the top 10 housebuilders fell 2% between Q2 and Q3 2024, and by 12% year-on-year, a slightly slower rate of decline than that seen in the first half of the year. Among the Top 50 housebuilders, the drop in annual completions was 5% and 11% on the same basis. 

Smaller housebuilder annual completions saw a small quarterly rise of 2% but remain down 6% year-on-year. 

The HBF sentiment survey (provided by NHBC) provides qualitative data on the major constraints affecting housebuilding. 

The overall picture is one of easing conditions for developers. The share citing land availability and prices as major constraints also fell, with 43% and 37% respectively reporting them as an issue, down from 67% and 69% in Q1.

Even planning delays, the most pressing concern in Q2 2024, saw improvement. 65% of developers surveyed cited them as a major issue, which, although still considerable,  represents a sharp fall from Q1’s record 90% share.

Cost and supply pressures for labour and materials continue to ease, with fewer than one in five developers surveyed citing any of them as a major constraint on housebuilding. This likely reflects lower cost inflation but also a shrinking pipeline of work compared to the previous year, which has reduced pressure on supply chains. 

Only 11% and 12% of developers cited labour availability and costs as constraints in Q2 2024. The share of developers citing material prices as a constraint declined to 15%, while materials availability also fell back after a small rise in Q1, with just 5% of developers now citing it as a major constraint. 

The ONS tracks the volume of construction output across Great Britain. This gives another timely indicator of activity in the housebuilding sector.

After plateauing for much of the year, private and overall housebuilding have risen to their highest level for six months. Both remain 16% to 18% below their 2022 peak, however.

Public housing output fell by 14% between January and August 2024, but remains only 4% below 2022’s level due to being less affected by the market cycle.

Build to Rent completions rose by 57% in the twelve months to September 2024 compared to the previous year. Completions remain 9% below their July 2024 peak. 

Starts fell to their lowest annual level since 2016, with fewer than 10,000 homes starting on site in the year to Q3 2024. This figure should be treated cautiously, due to the challenge of accurately capturing starts in the single-family segment of the sector. Future revisions are likely to be on the upside.

Looking ahead, Q2 saw very strong investment but there may be a lag until fresh capital translates into activity.

2023/24 remains on course to be a solid year for Affordable delivery. NHF estimates suggest overall annual delivery in the year to March 2024 will be 7% lower than last year. Nevertheless, this would still represent the second-highest number of new Affordable homes delivered since 2014-15, and more Social rent homes than any year since 2013-14.