Levelling up the housing market: can the new government deliver on its housing promises?
Economic growth and more homes for the UK - how will Labour meet the demands of a strained market?
According to Labour, building more homes is at the heart of their plan. In fact, Keir Starmer has promised that Labour will back housebuilding from the start. All of this is in a bid to drive economic growth and meet what is objectively an ambitious 1.5 million home target.
1.5 million homes over the next five years almost seems inconceivable, so it begs the question - can the new government actually deliver?
To stay on track, they will need to build 300,000 new homes every year, which is more than double what was built in 2022-23. Labour has said they will do this by:
Are their promises realistic? Let’s discuss.
Why has housebuilding plummeted?
To understand how we got to where we are today, we need to reflect on the unique journey that the housebuilding sector has endured over the last few decades.
Since around 1980, the number of homes built for the public sector has dramatically decreased. On the flip side of the coin, private house builders don’t want to build too many homes too quickly, as flooding the market could reduce what buyers are willing to pay. This is a valid concern, and arguably, the country’s biggest priority needs to lie with the public sector and social rented homes.
The market has been in a challenging place for some time, but this last year has been particularly evident of the difficulties in the market. For instance, housing transactions have fallen by 19% during 2023. According to HMRC figures, this is largely due to mortgage rates, but it does also mean that housebuilders have been cutting back.
Indeed, the number of new homes planned fell by 44% last year, according to the National House Building Council (NHBC).
Also, last year, we saw the lowest number of new sites approved on record - down nearly 20% year-on-year. As it stands, the construction of new homes is on a par with 2008 levels.
In an article by Money Week, Stewart Baseley, executive chairman at HBF, noted that “the sharp decline in housing supply is the inevitable result of several years of anti-growth policy and rhetoric. The politically driven weakening of the planning system will impact housing supply for years to come, and needs to be urgently reversed.”
Is a systemic overhaul something that Labour is capable of achieving?
Can Labour deliver on 1.5 million homes by 2029?
Just 72 hours into her new role as Chancellor of the Exchequer, Rachel Reeves outlined steps for planning reform. With a proposed 1.5 million homes on the agenda, 300 new planning officers, and a total shake-up of the system, it’s an ambitious goal. In fact, housing market experts across the country are saying that it will be a difficult target to meet.
They highlight that decisions about whether homes get built lie in the hands of private-sector housebuilders, not the government. There needs to be incentive to build, but Labour’s plan to soften regulations surrounding brown and greyfield site development may be a good starting point.
David Crosthwaite, chief economist at Building Cost Information Service, believes that Labour is unlikely to fulfil its housebuilding goal. He says, “It is a lofty ambition and nothing else. Flooding the market with new homes would not be in the best interest of property developers.”
He goes on to say, “The only way the government could influence supply would be to build themselves, which they used to do when local authorities employed direct labour to build social housing. This option seems unlikely given the current state of public finances.”
Lead analyst at Hamptons, David Fell, highlighted that “the policy levers they can pull are unlikely to deliver a housebuilding boom quickly. Higher interest rates will limit the number of homes that bigger developers can build and sell.”
They also need to address the matter of affordability. As we mentioned earlier, when housing transactions fall, fewer homes get built. The economy in its current state is not strictly conducive to major purchasing decisions.
Some are more optimistic about Labour’s prospects, believing that their policies could do more to boost housing supply than anything we’ve seen in several years. Their victory could lead to a significant increase in housing supply over the coming years. Whether it’s enough to meet the 1.5m target remains to be seen, but any boost is welcome at this point.
What’s the solution?
There isn’t a clear one at the moment, but Reeves has plans to reintroduce mandatory housebuilding targets for local authorities, help fund an additional 300 planning officers, and support the review of brownfield and greybelt land for development. The Chancellor has also implemented a task force to kickstart stalled housing schemes, such as the development in Northstowe, where only 1,400 of about 10,000 homes have been built.
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Labour’s interest in housebuilding means that their first Budget in the autumn will be closely scrutinised, particularly as we expect them to outline how exactly they plan to keep their promise of 1.5m homes in five years.
All things considered, we’re likely to see them make tough decisions early on in parliament to support their mandates, and a significant part of this will include overhauling the planning system.
Revamping the planning system
The first step in the new government’s plan to build more homes is to restructure the planning system. They’ve pledged to immediately revise the National Policy Planning Framework in order to reverse the changes made by the Conservatives. Most notable in this is the reinstatement of mandatory housing targets, scrapped under Rishi Sunak’s premiership in late 2022. The goal at the time was to build 300,000 homes annually, but that was not being met. The decision reportedly came from backbench pressure, which Labour criticised.
Labour have noted that additional Stamp Duty surcharges on foreign buyers will cover the funding of councils to hire additional planning officers and guarantee that local plans are being met. As we know, budget constraints by local governments have impacted planning departments for a few years, resulting in a backlog of applications.
We should see action too in the leasehold sector - another contentious topic. The Conservatives' Leasehold and Freehold Reform Act, which attempts to address the issues encountered by leaseholders, will be put into effect by the incoming administration with one significant addition: ground rents will be capped. The goal is to phase out leasehold, mandating that all newly constructed apartments be sold as commonhold. For the five million leaseholders in England, this could result in greater transparency and lower lease extension costs, possibly simplifying the purchase and sale of leasehold properties.
Results are likely to be slow as this is not a quick fix, and will take some time to source and recruit appropriate planners into the public sector. This is a years-long process, not a few months to a win. Some say that policy changes introduced now may only yield results towards the end of the parliamentary era.
These changes need to be part of a wider strategic overview, as highlighted by Charlotte Cane, a new Liberal Democrat MP for Ely and East Cambridgeshire: “One of our big problems in Cambridgeshire is that we don’t have enough water for new homes. The other problem is that the further out you go from where people work, the more they need proper public transport.”
In the King’s 2024 speech, he said “My Ministers will get Britain building, including through planning reform, as they seek to accelerate the delivery of high-quality infrastructure and housing [Planning and Infrastructure Bill]. They will also pursue sustainable growth by encouraging investment in industry, skills and new technologies.”
Loosening the hold on the green belt
Labour has said they will prioritise building on brownfield sites over developing across the countryside. However, using brownfield sites alone won’t be enough to meet their goals, so they intend to develop on lower-quality, grey belt land. They intend to expedite planning permissions for such developments, and though the review of the greenbelt has always been a contentious issue, steps must be taken to alleviate the housing shortage. It is vital, however, that Labour releases additional information about how they intend to carry out this policy. To address concerns such as public transport and accessibility, they must ensure that sites are chosen logically - both to keep cities vibrant and economically viable, but also to ensure homes are built in sustainable locations.
Council homes and social rented homes
In an effort to secure the future of England’s council housing, the Royal Borough of Greenwich and the country’s other major council landlords, Southwark, Bristol, Sheffield, Leeds, Birmingham, and Dudley, have collaborated to release five important ideas for Labour to consider:
These changes were proposed pre-election, but there’s no doubt that these needs still exist. Research warns that the future of the council housing system in England is in jeopardy. Budgets are stretched and costs have skyrocketed due to an unsustainable financial model and unpredictable changes in national policy. A study by Savills highlighted that without change, local housing budgets would be faced with a £2.2 billion “black hole.”
Unless change happens soon, most municipal landlords will find it difficult to keep up with the additional demands placed on them to upgrade their current properties - never mind construct new homes for social rent. Their plan asks for a “decade of renewal” in which the government and local councils collaborate to produce the next generation of council homes, bring all homes up to current, environmentally friendly standards, and put HRA accounts back on solid footing.
Supporting the first time buyer market
In addition to building more homes (and hopefully supporting the social housing sector), Labour wants to see more properties in the hands of first time buyers. Though it has historically always been difficult to save for a deposit, more and more young people want to become homeowners. In fact, many have, but not without support from family. According to a recent study by the Institute for Fiscal studies, the percentage of 25-34 year olds who own a home has increased to a level not seen since 2010. It showed that 39% of people of that age group owned their own home in 2022-23 - a 6% increase from 33% in 2015.
Labour intends to launch the Freedom to Buy programme to help people get mortgages in an attempt to raise that number even more. Although the scheme’s exact details are still unknown, developers will partly fund the programme. There is some wariness about schemes of this type, as they have been shown to raise property prices. This might only benefit a small number of first time buyers, however, as according to UK Finance, the average deposit made was about 25% of the total amount.
Options for first time buyers are important, as they not only serve the buyer but developers too. This makes it easier for people to unlock their dreams of homeownership, while also encouraging further development.
Productive work for productive reward
Even at these early stages, there’s no doubt that the government’s focus on planning as a driver of economic growth is a positive development for the industry. We’re likely to see more progress being made to address important concerns, including investing in local planning authorities, developing renewable energy sources, and delivering housing.
Again from the King’s Speech, 2024, he highlights that “[his] Government's legislative programme will be mission led and based upon the principles of security, fairness and opportunity for all. Stability will be the cornerstone of my Government's economic policy and every decision will be consistent with its fiscal rules.
Now, the task is to ensure that these programmes are successfully carried out locally to produce tangible results for the economy and communities.