INDUSTRY ANALYSIS
1.5 MILLION NEW HOMES? FORGET IT
Housing expectations are muted for 2026 as 2025 draws to a close, warns Tom Hall of Aqua Consultants
I rrespective of the measures in November’s budget, the government’s target of 1.5 million new houses in five years is surely dead and buried. The number of completions in England
Housebuilders are dogged by planning delays and added costs, such as biodiversity net gain, water and nutrient neutrality rules, and the residential property developer tax. While these elements are net-good for society and the environment, the additional costs disincentivise developers from building houses. The future home standard and building safety levy will add to this and affect smaller housebuilders more than larger ones. Risks and costs The government may hope for a big boost from converting unused commercial space into homes, but this comes with risks and costs for developers. Positively, consumers’ finances continue to improve. The economy has (slightly) outperformed expectations in the last year – with sustained positive (low) growth. Household incomes have increased every quarter above inflation. This has led – with continued negative sentiment around the economy and a very difficult recent few years – to households saving rather than spending. The household saving rate has remained at around 10 per cent for the last year compared with prior levels of five to six per cent. This mix of subdued leading indicators, an industry struggling with supply-side constraints, counterbalanced with steadily improving household finances, points to slow growth in 2026.
With public finances exceptionally tight, the government’s priorities lie on investment to achieve net zero and easing the cost-of-living crisis. The £39 million for new social housing is welcome but won’t contribute to a meaningful boost to the number of houses built.
Tom Hall
has fallen since 2022 (fig. 1). Positively, activity remains higher compared with the aftermath of the 2008 financial crisis and before the ‘Help to Buy’ stimulus that boosted demand from 2014. The graph demonstrates the impossibility of the 1.5 million target, evidenced by the dashed line. Even if the demand existed, the industry would be unable to provide the supply with its well- publicised constraints including: ● supply chain difficulties; ● construction material shortages; and most significantly ● a fall in labour as the ageing workforce starts to retire. Additionally, there hasn’t been a substantial improvement in construction’s leading indicators. Housing starts fell in 2024 and remain subdued. Construction product sales and deliveries show no explosion in growth. Mortgage approvals (fig.2) remain at the lower end of normal levels compared with pre-Covid levels.
Fig 1. Housing starts and completions in England, 2010-2030
300,000
Starts
Required completions Completions
250,000
200,000
150,000
100,000
Source: MHCLG
50,000
Fig 2. Number of mortgage approvals, 2010-2025
1,000,000
750,000
500,000
250,000
Source: Bank of England
0
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