Will developers accelerate applications amid planning reforms and rate cuts?
Plus, housebuilding downturn masks Britain’s labour issue
5 minutes to read
UK developers are poised for some more positive momentum as the Bank prepares to make further interest rate cuts this year, while the government has set out plans this week to liberalise planning rules and boost development.
Last month, the Bank of England cut rates by a quarter point to 4.5%, the third cut in six months, and it has signalled that it expects to continue to reduce borrowing costs, despite predicting inflation to tick up further in the coming months.
Meanwhile, the government has just released a new planning reform bill and is gearing up for a 10-year housing strategy at the end of this month, alongside the Spring Statement.
The planning and infrastructure bill, introduced in Parliament on Tuesday, builds on the National Planning Policy Framework (NPPF) reforms. While the NPPF made housing targets mandatory again and introduced more flexibility to develop on green belt land, the new bill aims to remove councillors’ ability to block most applications and reduce the number of official bodies that get a say in planning decisions in a drive to cut red tape.
The government's heavy focus on housing delivery, coupled with the decline in finance costs, should create new opportunities in the residential development market.
In our latest survey of over 50 volume and SME housebuilders, interest rate cuts and planning reform top the list of what would most increase developer appetite for land and new development.
As rates come down in the short term, moves to accelerate planning and bolster resource will be key to incentivising new projects to come forward.
Currently, housing delivery is being held up as local authority planning departments struggle with staffing shortages. This lack of resource is a key factor deterring developers from bringing new housing projects forward and is viewed as a bigger constraint than either uncertain timescales or the UK’s economic outlook (see graph).
So far, the government has responded to the resource issue by announcing a £46 million investment package to recruit and train 300 officers. While this will be spread thinly across the 300 plus local councils in England, and the industry has voiced concerns around skills gaps due to the dominance of graduate-level hires so far, it is a step in the right direction.
Other measures include mandatory training for planning committee members. Local officers will also be granted an enhanced decision-making role to implement agreed planning policy, freeing up councillors to focus on the more significant cases.
This forms part of the broader national scheme of delegation outlined in the planning and infrastructure bill this week.
The legislation also empowers councils to set their own planning fees to cover their costs. This could potentially include the employment of additional qualified planners, enabling councils to address the skills and capacity challenges in planning departments.
These moves come after years of staff retention issues with the number of public sector planning officers in England decreasing by approximately 3,100, or around 20%, between 2010 and 2020, according to an analysis by the Royal Town Planning Institute (RTPI), the professional body for planners.
This, combined with recent economic instability, has led to a dip in developer appetite and drop in approvals. The latest Housing Pipeline Report from HBF and Glenigan shows just 242,610 units received planning permission in 2024, the lowest since 2014.
However, with expected interest rate cuts and more streamlined planning, developers may regain confidence, boosting new applications.
Labour shortages creep up the agenda
It’s hard to scroll through the news these days without stumbling upon calls for a big boost to the UK’s construction workforce. But for now, labour shortages aren’t exactly topping the list of challenges facing Britain’s housebuilding sector—though they’re definitely starting to creep up as something to watch.
Just 13% of respondents to our housebuilder survey said they were concerned about either labour availability and skills or costs, up from 7% a year ago. This increases to a fifth for builders constructing fewer than 100 units per year and drops to zero for those delivering over 500 units per year, likely due to the higher project volume and long-term contracts that enable larger builders to more easily secure subcontractors or employ in-house workers.
This compares to over 70% of respondents who reported issues with labour availability and skills or costs back in autumn 2022 (see chart). That year, the UK saw a surge in housebuilding, with the number of new homes completed reaching the second highest figure since the Global Financial Crisis.
For now, a downturn in housebuilding and wider construction is masking the scale of the labour problem.
The latest S&P Global UK Construction Purchasing Managers Index, which tracks growth in the sector, fell to 44.6 in February, down from 48.1 in January and marking its lowest level for nearly five years.
Residential building fell for the fifth consecutive month and was the weakest-performing area of construction activity in February. Pandemic aside, the rate of decline for housebuilding was the fastest since early 2009.
In the current climate, recent trading updates and results from Vistry, Persimmon and Barratt Redrow suggest supply chain and labour force pressures are low risk. They are expecting either flat or low single digit build cost inflation in the near-term.
This chimes with the latest forecasts from the Build Cost Information Service, which is predicting the pace of build costs hikes will steadily reduce from 3.7% this year to 2.8% by 2028, despite elevated labour costs this year fuelled by the long-term loss of employment, as well as increases to employers National Insurance contributions and the National Living Wage.
But when activity picks up as housing demand increases, this could further strain the availability of skilled subcontractors and materials, resulting in increased costs and construction delays.
Post-Brexit immigration rules, low apprenticeship enrollment, and worker retirements have already made it more difficult to retain and recruit workers in construction.
In its manifesto, the government pledged to end the long-term reliance on overseas workers in areas of the economy including construction.
Expanding training programmes and increasing hiring in UK planning departments and the wider construction sector is crucial for delivering the large-scale residential projects the country needs. While the government’s signals have been encouraging, this spring presents a key opportunity to outline concrete proposals that could attract more talent and drive greater investment in the sector.