UK’s listed builders on track to build fewest new houses in a decade

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The UK’s listed housebuilders are on track to build the fewest new homes for sale in a decade, as planning rules and high mortgage rates hold the market back despite the new Labour government’s push to increase housing supply.

The sector, excluding Vistry which focuses on affordable and rental housing, is forecast to complete just over 50,000 homes this year, the lowest level of output since 2013, according to a Financial Times analysis of figures for seven companies compiled by Investec.

Shares in Vistry fell 17 per cent on Tuesday as the company issued its third profit warning since October, blaming “delays to expected year-end transactions and completions” and having to abandon deals because the financial terms “were not sufficiently attractive”.

The widespread housebuilding contraction poses a huge challenge for Prime Minister Sir Keir Starmer’s Labour government, which has launched sweeping planning reforms in an effort to boost the construction of new homes to the highest level in more than 50 years. 

“The listed players are broadly delivering their lowest completions for a decade,” said Aynsley Lammin, analyst at Investec. He said “both demand and supply factors” — including high mortgage rates making purchases harder for first-time buyers — were behind the slump. 

Labour’s planning reforms have been welcomed by the construction sector but shares in UK housebuilders have fallen by about a fifth since the Labour government’s Budget in October, which raised fears of resurgent inflation and borrowing costs staying higher for longer. 

Vistry has already twice warned this year about undercounted building costs, totalling £165mn. It cut its profit guidance for 2024 by another £50mn on Tuesday. Lammin said the fresh warning would “damage the group’s credibility” and “further unnerve investors”.

The rest of the sector, including companies such as Barratt, Persimmon and Taylor Wimpey, have meanwhile suffered from post-Budget concerns about interest rates because they are highly sensitive to borrowing costs.

Most of these companies’ customers rely on mortgages, and many are first-time buyers who are stretching their budgets to the maximum. Mortgage rates have stayed higher than expected this year, above 5 per cent on average, according to financial information provider Moneyfacts. 

Output across the seven listed housebuilders slipped 3 per cent this year. It follows a drop of one-fifth in 2023 in the aftermath of the Conservatives’ “mini” Budget in September 2022, which led to a surge in mortgage rates and slammed the brakes on the property market.

The downturn in new home completions by these companies — which also include Bellway, Berkeley, Crest Nicholson and MJ Gleeson — is part of a wider contraction in housing output. Data tracking the total supply of new dwellings showed 5 per cent fewer homes completed in the first nine months of 2024, compared with the same period a year before. 

The industry is on track to finish about 220,000 new homes this year, according to estate agent Savills, far short of the numbers needed to hit Labour’s target of 1.5mn over five years.

As sales have declined, housebuilders have pulled back from buying land and opening new sites, reducing their output and trying to avoid having to cut the price of their homes. 

Many in the sector are hopeful that 2025 will be the start of a recovery, with mortgage rates expected to fall gradually and the possibility of Labour’s pro-building reforms starting to bear fruit.

“The 2024 Labour government is the most pro-housebuilding government we can remember,” said Anthony Codling, RBC analyst. “The UK housebuilders have been oversold since the Budget.” 

Analysts and industry groups have warned that Labour is likely to miss its target of 1.5mn new homes unless it can find ways to help more overstretched first-time buyers afford a home — and provide much greater funding to affordable housing. 

But some industry executives are still bullish. “I get fed up with the moaners,” Bellway’s chief executive Jason Honeyman told the FT on an October results call.

“People wanted to complain about the old government, who didn’t want any new homes. And now they want to complain about the new government, who want to build too many,” he said. “It’s ambitious . . . The housebuilding sector takes a while to start building again”.