The United Kingdom is significantly behind its target of building 1.5 million new homes by the end of the current parliament, with new data indicating a shortfall and projections suggesting the completion rate will worsen. In the year leading up to June 2026, approximately 202,700 homes were constructed, a modest increase of 0.4 percent from the previous three-month period, according to analysis of Energy Performance Certificate data by estate agent Savills. To achieve its goal, the government needed to build an average of 300,000 new homes annually.
Savills has warned that the pace of home completions is expected to slow between now and 2029, estimating an average of 167,500 homes per year over the five years leading up to 2029-2030. Housing minister Matthew Pennycook acknowledged the difficulty, stating it is "looking really tough" for the government to meet its five-year objective.
Further dampening prospects, the number of new housing developments receiving planning permission hit a low in the first quarter of this year. Data from Glenigan and the Home Builders Federation (HBF) revealed that only 1,220 private housing sites were granted planning approval across England, the lowest figure since the dataset began in 2006. This marks a significant decrease from around 2,000 sites in 2022 and nearly 3,000 in 2017.
Factors Affecting Home Building
Housing minister Pennycook attributed the slowdown to several factors, including increased material costs stemming from global conflicts and rising mortgage rates, which have suppressed demand for new homes. "We always knew things were tough, and things are really tough for house builders at the moment," Pennycook stated in an interview with LBC. He highlighted that material prices are escalating, and demand is sluggish due to mortgage rates, creating a challenging environment for the housing market.
Savills' analysis indicates that construction cost inflation has outpaced house price growth by 80 percent between 2020 and 2025. The HBF estimates the cost of building a new house has risen by an average of £76,000 since 2020, with apartments facing even higher cost increases. The cost to build a two-bedroom flat in London has reportedly risen from £245,000 in 2016 to approximately £430,000 today, a 75 percent increase, while the average selling price for flats in the capital has not kept pace.
The widening gap between construction costs and property prices is squeezing developer profit margins, a situation most pronounced in London and the South East but felt nationwide. Savills suggests that sustained house price growth is necessary to incentivize developers, but additional cost pressures exist.
New building regulations and environmental planning policies have also significantly increased costs over the past five years, according to the HBF. The upcoming Future Homes Standard and Building Safety Levy, scheduled to take effect in October, are expected to further impact developer margins. The Building Safety Levy, a tax designed to raise £3.4 billion for addressing building safety issues, will be charged before work completion and collected by local authorities. The HBF warns this levy could make development financially unviable in some areas, adding an average of £3,000 per plot.
Neil Jefferson, chief executive of the HBF, emphasized that increasing housing supply requires addressing site viability and affordability. "Positive moves to boost housing supply are being thwarted by the growing level of taxation and cost of policy requirements that are making many sites simply unviable to develop," he said. He added that the Building Safety Levy, along with concerns about interest rates, the economy, and a lack of affordable mortgage lending, is suppressing demand and limiting the industry's ability to build.