Housing supply

Housing construction increases, but insufficient housing supply continues to drive up house prices

The number of sites under development for new homes increased by 15% in the second quarter of the year compared to the corresponding period in 2021, according to the latest data.

Figures from the Office for National Statistics show a sharp rise in housing starts from April to June this year, with 51,730 homes under construction.

However, the increase came after a sharp drop in construction levels during the Covid pandemic (2020 to 2021), when the decline in housing construction levels was comparable to the 2008 financial crisis which hurt builders in houses and the housing market. Net housing growth in the UK fell 11% in 2021-20 compared to 2019-20 as construction recovered following the Covid-19 pandemic.

The latest figures show the number of homes completed rose 6% from April, May and June last year to 44,940. This is also a 3% increase from compared to the previous quarter.

Despite improving housing construction levels, the volume of new build homes delivered continues to fall well short of the UK government’s target of developing 300,000 homes each year.

The housing shortage continues to put upward pressure on house prices in many parts of the country.

Residential property prices rose 15.5% in July, according to the ONS, although analysts expect price growth to slow in the coming months.

Rhys Schofield, managing director of mortgage broker Peak Money, said: “If you scale down the numbers that look big on paper, the UK needs to build 340,000 new homes a year until 2031. The target of the government is 300,000 a year.

“These latest numbers are all well below, meaning property prices can only be forced in one direction. With the lack of urgency around home building, having somewhere to call home increasingly out of reach for many people.

The price of building materials in the UK is also believed to have a negative impact on the housing construction sector. According to the ONS, building materials prices in the UK in July 2022 were 24.1% higher than a year earlier.

Edgar Rayo, Chief Economist at property finance firm Finanze, commented: “These recently released figures highlight the construction cost inflation plaguing the sector.

“Soaring construction costs caused by supply chain issues and rising fuel prices continue to squeeze profit margins for UK property developers.

“While we follow the imbalance in the housing market, we are still seeing the very strong demand for housing, which continues to put pressure on prices.”