Housebuilding increase 'impressive, but ultimately not enough'

The development finance sector enters 2024 in a more positive mood, benefitting from something that we haven’t experienced in a long time — relative stability.

Inflation is falling, house prices have stabilised, mortgage rates have come off their recent highs and the supply chain issues that have blighted the development sector since Covid-19 are easing. 

Yet challenges undoubtedly remain, and conditions are still tough for developers. 

The perennial issue remains delays with planning permissions being granted for new developments.

This is an ongoing problem that prevents homes from being built promptly, causing a delay in providing much-needed housing across the country. 

It’s a situation that needs to be addressed and must be high on the agenda of any new housing minister who takes the reins in a new government. 

Further to this, we’re continuing to see delays in housing being built due to nutrient neutrality concerns in many areas across the country, the complexity of which is growing.

We hope to see this improve over the next six years to help reduce high levels of phosphate and nitrate in these areas and enable developments to be built.

Additionally, whilst mortgage rates are falling, homebuyers are still adjusting to the end of the ultra-low interest rate environment.

Fortunately, we are starting to see mortgage rates that start with a three, but it wasn’t so long ago that they started with a one, so it will take some time for the market to normalise and transactions to start flowing again. 

Despite these challenges, we continue to see plenty of opportunities for SME housebuilders and developers.

Demand for rented homes has been at record levels and more of the companies we speak to are considering BTR, so we could see diversification in business models.

The shape of the BTR market is changing; traditionally it was a sector that was popular with young professionals looking for a build-to-rent unit in city centre locations to be close to amenities and transport links. 

More broadly, fundamentally we are failing to build enough homes to satisfy demand, which underpins demand for developers’ products. 

The government recently updated its population projections and is forecasting that the UK population will grow by nearly 10% between 2021 and 2036.

Housebuilding isn’t keeping up.

The government’s most recent figures for England show there was a 234,400 increase in net additional dwellings in the year to April 2023, with new build homes accounting for 212,570 towards the figure.

Impressive, but ultimately not enough.

What is clear is that we need to stop admiring the problem of these issues and start to act.

There is a burning bridge, with population growth accelerating away from housing completions.

Despite the obvious challenges in the sector, we are optimistic about the development finance industry in 2024.

The issues facing the sector continue to delay schemes, but it’s important to acknowledge that economic signs are improving.

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