How might the numbers add up to the 300,000 homes target?

• Private sales of new homes may only deliver around 100,000 new homes per year during the second half of the 2020s, given the current policy context. Volumes will be lower than recent years due to a lack of support from Help to Buy and a poorly performing planning system.
• If the planning system delivered a greater volume and range of sites, supporting a diversification of new homes delivery, then this could increase to 140,000 to 160,000 new homes sales per year by the late 2020s.
• Build to Rent is growing as a means of delivering new homes, but volumes remain relatively small and the investment market has experienced significant disruption over the last two years. We think it would be prudent to expect Build to Rent to be delivering around 20,000 homes per year by 2030.
• Against the 300,000 homes target, that suggests we need to be delivering 120,000 to 140,000 new affordable homes each year. A high proportion of these should be social and affordable rent, which can be quickly occupied by lower income households.

Despite the wider challenges in the housing market from higher interest rates, new housing supply has remained relatively unaffected so far. The total volume of delivery in 2023/4 looks likely to be down only slightly on the previous two years, although this will not be confirmed until  the net additional dwellings data is released in November. We estimate that approximately 200,000 homes will be delivered in 2023/24, compared to an annual average of 210,000 over the last five years.

Volumes have been largely maintained in three ways: through completing homes that were sold off-plan in better market conditions, a good year for Build to Rent completions, and more affordable housing delivered by housing associations deploying grant to buy homes intended for private sale.

This delayed reaction in housing supply is not unusual, following a downturn in the wider housing market. During the Global Financial Crisis, house prices started to fall in late 2007 and transactions volumes fell quickly, but new housebuilding actually went up in 2007/8 compared to the previous year and took two years to reach the lows of 2009-13.

The outlook for housing delivery in 2024 and beyond is extremely poor:

• NHBC data shows that ‘private’ (effectively homes built for sale to individuals) and ‘alternative’ (including build to rent and affordable) starts were down 26% and 13%, respectively, in the year to March 2024 compared to 2023.
• The G15 has written an open letter to the Secretary of State warning that starts by its members are down 76% in London in 2023/4 compared to the previous year, and down 37% outside the capital.
• Provisional Government data for Q4 2023 recorded the lowest number of new homes starts in any quarter since the series began in 1978, 52% below the average for Q4 over the last ten years. 

Overall, we think new homes completions could fall to just 160,000 in 2024/5.

Private sales

The largest contributor to housing supply is new homes sales, i.e. housebuilders selling new homes to individual buyers. This reached over 150,000 new homes per year in 2018/19 and 2019/20, with stable housing market conditions and the very substantial support of Help to Buy.

The disruption caused by the pandemic and the wind-down of Help to Buy has reduced this to an average of 140,000 new homes per year over the three years to March 2023. In 2023/4, we think this will be down at circa 115,000 new homes.

This reduction is reflected in housebuilder sales rates. The average among the top eight housebuilders was 0.7 sales per outlet per week during the late 2010s and this is down 20% over the last year at around 0.55 (including an increased proportion of bulk deals).

We see little prospect of sales rates improving substantially in the current housing market, planning and policy environment. From 2024/5 onwards, we expect around 100,000 new homes sales per year. This is broadly in line with the number of unsupported new homes sales that has taken place every year since the mid-2010s, when the development market had recovered from the impact of the GFC.

Housebuilders may be able to deliver more if they could open more outlets and deliver new homes across a greater variety of sites and locations. Several housebuilders have said publicly that their delivery is limited by a shortage of outlets. The lack of small sites is a major factor limiting the size of the SME housebuilder sector (click here to see our report for LPDF on this issue).

But there is no sign that the current planning system is going to deliver the sites needed to support this. The number of homes consented has fallen by 32% over the last three years and the average site size has continued to increase.

Build to Rent

The other private sector contribution to housing delivery is Build to Rent. The current high volume of completions is the benefit of a very good year for starts in 2021. Around 20,000 new Build to Rent homes were started in both 2021 and 2022, which will sustain the high volume of completions until 2025. But delivery volumes beyond this point will be limited by the low number of starts in 2023, at just over 10,000, and 2024 is unlikely to be much better.

Although this is a sector that is growing, there are inevitably bumps along the way. The recent disruption to financial markets and higher cost of debt, to some extent offset by high rental growth, has held back the flow of equity into the sector. This is now easing, but given the time it takes to put deals together and the average 2-3 year construction time for Build to Rent schemes will mean that it will be 2028 or 2029 before this comes to fruition.

A large gap for affordable housing

Adding together these two forms of private sector delivery gives around 120,000 homes per year by the end of the 2020s. If the planning system performed better and delivered a greater variety of sites, this could be higher, say 160,000 to 180,000 homes per year. But this still leaves a very substantial gap against the overall housebuilding target of 300,000 homes per year. It suggests that we need to be delivering 120,000 to 140,000 affordable homes per year, a level of delivery that would broadly meet affordable housing need. A high proportion of these homes should be for social or affordable rent, as the most countercyclical housing tenures for demand.

Delivering this volume of affordable housing will require more support from Government. Without a more supportive policy environment, Section 106 volumes will fall in proportion to the drop in new homes sales. So a focus is needed on supporting an increase in private housing delivery. On top of this, the Affordable Homes Programme from 2026 needs to seek to fill the gap between this market-led delivery and the 300,000 homes per year target.

Section 106

Section 106 has become a major contributor to affordable housing, reaching 56% of new affordable housing completions in 2019/20 and nearly 30,000 homes. The proportion had dropped back to 49% in 2022/23, but Section 106 still delivered nearly 30,000 homes.

These numbers came alongside high volumes of private sector housing delivery, as the two are inextricably linked. Section 106 has been an average of 17% of all market completions (for sale or build to rent) over the last five years. Even if this rate of Section 106 is maintained, with lower volumes of private sales over the rest of the 2020s, we expect Section 106 to fall by around one third to c.20,000 homes per year.

The gradual adoption of First Homes means that the number of affordable rent and shared ownership homes delivered will fall by slightly more than one third.

If the planning system were to support a diversification of delivery and new homes sales increased to the levels of the last five years, then the volume of affordable housing delivered through Section 106 could be assumed to increase proportionately.

Grant funded (and other) affordable housing

Grant funded affordable housing is the only source of countercyclical housing delivery, although the number of homes likely to be delivered by the 2021-26 programme has been affected by a range of challenges similar to those affecting market housing delivery. Higher costs of finance and higher build costs are affecting all types of development. On top of this, housing associations are contending with increased demands for investment in their existing stock alongside rent increases that have been below the rate of inflation in five of the last eight years.

This combination of factors has reduced the capacity of the sector to deliver the original aspirations of the 2021-26 Affordable Homes Programme. In London, the GLA has said that the number of homes delivered is likely to be cut by around 25%. Outside London, the numbers are less clear, but a report from the National Audit Office in 2022 suggested numbers would be down at least 10% and it is clear that expectations have been substantially reduced since then. 

We think there has been an increase in grant funded delivery in 2023/4, as grant has been deployed to support conversion of homes built for sale. But the slowdown in private sector starts means there will be less opportunity for this in future years. Combined with the lower affordable starts, this will mean a substantial slowdown in grant funded delivery from 2024/25.

We do not know what the programme for grant funding of affordable housing will look like from 2026. Our forecast assumes that non-Section 106 affordable housing delivery, which is mostly grant funded, will average 30,000 homes per year, in line with the average annual delivery since 2010. But the reality could be very different and an affordable homes programme that sought to meet need could deliver substantially more homes.

The National Housing Federation has kindly sponsored the production of this report.