Economic experts have said that if the Government wants to achieve its 1.5m housebuilding target it will have to tempt smaller housebuilders back into the sector. Reforms to planning and potential subsidies will be needed claim experts in Glenigan’s latest construction industry forecast.
- Housing starts predicted to increase by13 per cent in 2025 and 15 per cent in 2026
- New housing affordability targets of 40 to 50 per cent will be hard to meet
- Office refurbishments predicted to rise to accommodate hybrid working
SME builders should be attracted back into housebuilding, claims senior economist
Private housebuilding starts are expected to increase next year and throughout 2026 but smaller builders need to be attracted back to ensure diversity of delivery, according to analystsGlenigan.
Bloomberg Intelligence senior equity research analyst Iwona Hovenko has warned that the government can’t rely solely on profit-driven developers to deliver 1.5 million new homes.
“Attracting smaller builders back into the market – after many exited amid hefty regulation and capital intensity, with only the largest ones able to cope – is key to diversifying housing supply, making the planning overhaul and accessible funding key,” she said in Glenigan’s 2025 to 2026 industry forecast.
A ministry for housing, communities and local government spokesperson said it was consulting over the future small site policy for a revised national planning policy framework.
He said the government would support SME developers by “encouraging a diverse mix of housing types and tenures.”
Ms Hovenko warned that steep affordability targets of 40 to 50 per cent would make it tough for homebuilders to deliver without the help of subsidies or drops in land value.
The report predicts an increase in private housing starts of 13 per cent in 2025 and 15 per cent in 2026 due to improved market conditions.
It said a strengthening in economic growth and further interest rate cuts are expected to further buoy house-buyers’ confidence during 2025 and 2026.
Social housing is estimated to see a boost of 11 per cent in both 2025 and 2026 due to greater cost stability and government funding helping housing associations increase development activity.
The sector saw a drop in student accommodation project starts of around 15 per cent. However, student accommodation is predicted to grow over the next two years due to a relaxing interest rate and increased demand.
Government policies are set to increase activity over the next two years with £500m extra funding going towards the affordable homes programme and a reduction in right-to-buy discounts. Local councils will be able to keep full receipts from council house sales and use the money to fund new social housing.
Office starts declined by 21 per cent in 2024, however, a rise in refurbishments is predicted as premises remodel to accommodate hybrid working.
Material supply shortages could hinder output
But the Construction Leadership Council, CLC, has warned of supply chain pressures associated with a rapid increase in house building.
It said that brick capacity in the UK is around 2bn – half of the amount available in the 1970s which was the last time the country built 300,000 homes a year. Structural timber could also be hard to source with Sweden already increasing log prices and the prospect of producers using price to manage supplies.
Hank Zarihs Associates said development finance lenders were hoping for a gradual upturn in housebuilding to give time for material supply chains to increase production and build stocks.
LinkedIn Question: What can the government do to attract smaller builders back into the housebuilding sector?