Housing delivery falls for third quarter

Annualised housing delivery has declined for three consecutive quarters, according to Energy Performance Certificate (EPC) data – Only 238,500 new homes were built in the year to Q1 2022, down from the peak of over 255,000 at the same time in 2020.

Starts high but uncertainty ahead

Starts had a bumpy start to 2022, with low numbers during the Omicron wave of Covid in January. But higher numbers in March meant that overall Q1 starts remained at pre-pandemic levels. With starts more stable, the number of homes under construction is also stable for now, having been in decline since 2018.

Looking ahead to Q2, build cost inflation driven by the invasion of Ukraine presents a significant challenge to maintaining the level of starts. This is particularly the case where delivery relies on contractors.

Consents still above 300k units

Full consent was granted for over 300,000 new homes in the year to April 2021, higher than previously thought thanks to revised data from Glenigan/HBF. 27% more homes were granted consent than were completed over the same period. This suggests potential for greater delivery at a national level, but not necessarily where more homes are most needed.

While the number of units gaining consent has held steady, the number of consented sites has fallen by around 25% compared to recent years. In other words, individual sites are growing in size. Between 2014 and 2019, the average site had 16 units; since 2020, that has risen by over a third, to 22 units.

This will impact delivery as larger developments take longer to build out and are often beyond the capacity of SME housebuilders, limiting how much they can contribute to overall supply.

Housing delivery still below need but London pipeline continues to expand

New home completions failed to meet housing need across most of England in the year to Q1 2022, as even regions that have normally met their targets such as Yorkshire and the Humber fell short. New consents exceeded both current supply and housing need across the north of England, as well as the East Midlands and the East of England. 

Though still failing to deliver sufficient housing, London’s pipeline has continued to grow strongly. The year to Q1 2022 saw c. 56,000 new homes gain consent, shrinking the gap between consented units and housing need to less than a third. 

Were the Housing Delivery Test run for the three years to Q1 2022, we would expect 67% of local authorities to pass. The pass rate remains elevated by Covid-related adjustments. Nevertheless, a third of local authorities are still projected to fail to meet their housing requirements, with 56 expected to see the toughest sanction imposed. Given the challenges facing housing delivery, we would expect more local authorities to fail future iterations of the test.

Figure 1 Where is delivery meeting targets?

238,500 new homes were built in the year to Q1 2022, according to Energy Performance Certificate (EPC) data. Annualised delivery has now fallen for three consecutive quarters.

Around 300,000 new homes gained full consent in the year to Q1 2022, according to our calculations using HBF/Glenigan figures. New data released this quarter saw the number of recently consented units revised upwards, suggesting that consents have numbered between 290,000 and 340,000 each year since mid-2016. 

On an annualised basis, starts and completions declined in Q4 2021 by 1% and 3% respectively, though both remain elevated compared to pre-pandemic trends.  

Starts are expected to remain at similar levels into Q1 2021, according to early data from Glenigan. This should mean starts overtake completions as the latter decline, causing the construction pipeline to enter a period of expansion. Factors such as build cost inflation and the average site increasing in size (typically increasing build-out times and limiting SME housebuilder delivery) may hold back starts, however. 

Housing delivery continued to fall short of need across the country, with only three regions surpassing what is required. Though London delivered less than half its current housing need, the city enjoys a growing pipeline. The year to Q1 2022 saw c. 56,000 new homes gain consent, shrinking the gap between consented units and housing need. 

By contrast, the South East is on course to see delivery decline, with fewer consented homes than completions in the year to Q1. The wider South is heavily affected by nutrient neutrality restrictions, reducing land available for development – an issue which has spread to other parts of England more recently. 

Issuance of Help to Buy (HTB) loans fell by 10% in the year to Q3 2021, with 47,227 loans being taken out. 

The drop comes after a record Q2 2021, as completions under the original scheme came to an end. HTB loans are now restricted to first time buyers only and subject to reduced value caps outside London. Q3 HTB completions were 39% lower than the same quarter in 2019.  In London, where the value cap did not change, completions were still down 32%.

By comparing HTB loans and EPC figures, we estimate 22% of all new homes built were purchased with HTB loans in the last three years to Q1 2022.

The Build to Rent (BtR) sector saw annualised starts and completions fall slightly in Q1 2022 compared to the previous quarter. Nonetheless, year-on-year starts were 16% higher in Q1 2022 than a year earlier, and ran 48% ahead of completions this quarter. This indicates strong expansion in the pipeline of BtR homes under construction, and that total stock will continue to grow.  

Delivery of affordable homes fell by 15% in 2020/21, but is set to recover in 2021/22, according to early NHF data. 

This suggests a strong rebound in affordable home delivery in 2021/22. Social rented homes are expected to see the strongest recovery, with 50% more homes set to be delivered than in 2020/21 and the highest overall number of completions since 2014-15.

Affordable rent and affordable ownership will see more modest upswings, with delivery likely to rise by around 12% compared to 2020/21.