The UK’s progress towards its ambitious housebuilding target has been dealt another blow after the fiscal watchdog said housing output is set to slow for another three years.
The Office for Budget Responsibility (OBR) said housing delivery will fall to 229,000 this year, to 221,000 the following year and to 219,000 in the year 2027-28.
The OBR had previously thought housing construction would pick up in this year, to 252,000, but the watchdog said it has downgraded this outlook owing to rising costs of building and the burden of red tape on builders.
The OBR said it had previously tipped housebuilding progress to improve in 2027-28 because of the government’s planning reforms, but it said on Wednesday that the headwinds posed by the Iran war have since scuppered these benefits.
Its analysis of the Budget said: “We have not revised our judgement that the 2024 planning reforms will have a positive impact on housebuilding.
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SUBSCRIBE HERE“Instead, this change is driven by wider pressures in the construction sector because of weak demand, rising material costs and the impact of other regulatory changes.”
Labour had committed to building 1.5m homes by the end of this Parliament but housing secretary Angela Rayner has all-but abandoned this target, admitting it was always a “stretch” goal.
Steve Turner, executive director of the Home Builders Federation, told the OBR’s previous housebuilding targets were “far too ambitious”.
He said: “While the planning changes were very welcome, there’s some other considerable constraints on housing supply, not least a lack of demand due to mortgage unavailability, and the huge increases in taxes and policy costs that have led to many sites not being viable, so I think the numbers today reflect that.”
While much of the slump in demand for housing has been blamed on the rising mortgage rates caused by the Iran war, the OBR also laid blame at the feet of the government, for “the cumulative effect of regulatory and fiscal changes outside [of] the planning system”.
The fiscal watchdog named the building safety levy, new biodiversity regulations and higher rates of corporation taxes among government measures which have actively slowed housing delivery.
“These policy developments have increased the cost, complexity, and timescales associated with residential development,” its report said.
Adam Daniels, chief executive of London-listed housebuilder Vistry, said it welcomed the government’s support for first-time buyers and commitment to build more affordable homes.
“However, we would caution that the delivery of the Government’s wider housing agenda remains at risk unless the housing development viability challenge is urgently addressed,” he said.
“This must include reducing regulatory burdens, bearing down on construction costs, and backing innovation such as advanced modular manufacturing of new homes.”