Planning permissions fall further

The ongoing contraction in new homes gaining full planning consent showed no sign of abating in Q3. Only around 257,000 homes were estimated to have gained planning consent in the twelve months to September 2023, according to HBF/Glenigan data. That’s the lowest annualised figure since September 2015, and at least c. 100,000 too few to have a good chance of hitting the government’s target of 300,000 homes per annum. Even with a small upwards revision likely, the downward trajectory looks set to continue.

Delivery of new homes sees small drop

Given the poor outlook for planning permissions, and a weak sales market generally, a decline of only -4% in annual completions seems comparatively positive. Nevertheless, at 237,000 new homes built, the year to September 2023 still ranks as the lowest annualised quarter since mid-2018. It may also be a case of the worst being yet to come. Based on the current timescale of eighteen months to two years to convert a planning permission into a new home, the sharp drop in planning consents since mid-2021 would only just be beginning to really pinch. 

A slew of new rules came into force over the summer, including the Building Safety Act 2023 and new Part L building regulations (introduced last year) coming into full force. The result has been a rush to formally start on site during the grace period before the new rules took effect – sending official data on starts soaring. These “paper starts” are unlikely to all become new homes any time soon, however, and other indicators like brick deliveries and purchasing indices suggest housebuilder activity remains subdued.

Little improvement on meeting housing need

Despite the passage of the long-awaited Levelling Up and Regeneration Bill into law, much uncertainty around planning policy remains. On nutrient neutrality, for example, the last few months have seen the government fail to amend the LURB to remove the rules, announce a stand-alone legislative measure, and then scrap that effort as well.

Given this backdrop, England is unlikely to improve the supply of new homes going forward. As Figure 1 (below) shows, 40% of Local Authorities met their housing need targets in the three years to Q3 2023. 22% missed the target by more than half.

Figure 1 Where is delivery meeting targets?

Affordable and Build to Rent offer much-needed options for developers

With sales rates on private homes slowing to c. 0.45-0.55 per outlet per week as reported by major housebuilders (down from a peak of 0.8 in 2022), the weaker for-sale market is shifting the focus for developers. Bulk sales to Registered Providers (such as Housing Associations) and Build to Rent investors are increasingly common as builders seek to manage risk and diversify larger schemes. 

As a result, affordable delivery has remained much more robust than the wider market, with completions remaining above 50,000 in the near-future. Build to Rent construction activity has yet to return to growth, but the pace of contraction has slowed considerably, and the sector remains buoyed by a solid construction pipeline and renewed investor interest.

237,000 new homes were built in the year to September 2023, according to EPC data, a fall of -4% compared to the same period a year ago and the lowest annualised figure since mid-2018.

Despite revisions giving a small boost to the number of homes gaining consent, that trend also remains downwards. Around 257,500 new homes gained full planning consent in the year to September 2023, according to initial estimates from Glenigan and the HBF. 

The decline in planning consents means fewer homes will be built in the medium term, and delivery will fall further below the government’s target of 300,000 new homes per annum.

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

Starts reached 191,270 in the year to June 2023, the highest since the series began in 1978, but this should be treated cautiously. Tougher building regulations entering into force in Q2 likely incentivised developers to start on site before the new rules applied.

Indicators such as brick deliveries (below) or S&P Global/CIPS UK Construction PMI, which tracks input purchases across major construction companies, suggests activity remains downbeat. Completions continued to fall, by -3% on an annualised basis.

Brick deliveries, which provide a useful proxy for construction activity including housebuilding, offer an alternative to data on housing starts. In the latest reading, the twelve months to Q2 2023 has seen deliveries fall by -7% compared to the previous annualised quarter, and -17% year over year. 

This suggests there has been a more considerable contraction in construction activity than indicated by housing starts data, in line with wider trends in the development market.

The supply of new homes remains below housing need across most of England, with supply in the South East and London worst affected. 

Seven out of nine regions granted fewer planning consents than they delivered new homes (measured by EPCs) over the twelve months to September 2023. They are therefore at risk of seeing fewer new homes being built in the future. Four of these regions – the South East, the West Midlands, the South West and the East of England – already fail to build enough homes to meet their housing need.

Construction activity in the UK Build to Rent (BtR) sector continued to fall in the third quarter of  2023. Starts and completions fell by -32% and -28% during the twelve months to September compared to the same period last year. 

Nevertheless, there are signs of the market stabilising. The pace at which construction activity is contracting has slowed down considerably. Annualised starts fell by -11% between Q2 and Q3, almost two-thirds less than the year-on-year figure. Similarly, completions fell by only -7% between Q2 and Q3, four times slower than the year over year figure. The sector also retains a solid construction pipeline of existing starts yet to be completed.

Delivery of affordable homes is expected to have fallen marginally in the year to March 2023, according to the latest data from NHF, but is forecast to improve slightly the following year. 

The tenure mix of new affordable homes is changing in line with the aims of the 2021-2026 Affordable Homes Programme. Social rented homes are estimated to have seen a 26% increase in delivery in 2022/23, with further growth expected in 2023/24. Affordable ownership is expected to see a modest rise. On the other hand, delivery of Affordable rented homes will likely decrease by 17% in 2022/23 and stabilise at around 25,250 units per year.