According to the latest figures for the Office of National Statistics (ONS), in the second quarter of this year there was an increase of 15% in the number of new houses being built.
Between April and June this year a steep rise in new houses being built has led to 51,730 homes being under construction, which is also the highest number on record since data has started to be collated in 2002.
This is an increase of 21% compared to the last quarter. And compared to the same period last year, it’s an increase of 15%.
The last record was set in the first quarter of 2007, when 48,758 new housing developments were started.
The number of completed homes has also risen by 6% compared to the same period last year and 3% compared to the last quarter, with 44,940 completed new homes.
Despite Record Number Of New Houses Government Target Likely To Be Missed
The UK government has set a target of 300,000 new homes to be built each year. But despite the record high achieved in the second quarter of this year, it is unlikely that this target will be achieved.
If you cut through the numbers that look big on paper, the UK needs to build 340,000 new homes a year until 2031. The Government’s own target is 300,000 a year.Rhys Schofield, Managing Director at Peak Money
One reason for the likely missing of the target are the low construction levels during the pandemic. In the years 2020 and 2021, there was a drop in the construction of new houses, which was similar to the one during the 2008 financial crisis.
In 2020-2021, the number of new housing developments dropped by 11% compared to pre-pandemic times in 2019-2020.
Another reason is the rise in the price of construction materials in the UK. According to ONS data, in July 2022, construction materials were 24.1% more expensive than earlier in 2022.
This building cost inflation has also put pressure on supply chain issues, which had already begun during the pandemic. And soaring fuel costs add to the pressure, reducing the margins for developers.
A Different Picture In Different Regions
The biggest increases, in terms of new housing developments being started, have been seen in London, with 28% increase, and the East Midlands, with an increase of 18%.
But the East of England, the south of England and the South West have also seen a rise in new homes being started.
The biggest increase in new houses being completed has occurred in the East Midlands, with a 6% increase. Completions were also up in the North East and the East of England.
While London has seen the biggest increase in new developments being started, there was a 20% decrease in completions in the year to 30 June 2022, compared to the year before.
In both categories, the East Midlands has performed best, with the highest rates of annual starts and completions per 1,000 residential properties.
House Prices Rise Despite Increased Housing Supply
While these new homes will boost the housing stock, supply is still low compared to demand, which continues to push up prices.
Despite the cost-of-living crisis, rising energy costs and interest rates, buyer confidence is high. The latest Property Sentiment Index by property portal OnTheMarket (OTM) shows that in August, 73% of buyers were confident that they would buy a house in the next three months. Equally, 79% of sellers believed that they would sell their house within three months.
While both figures have declined slightly compared to July, buyer and seller sentiment is still going strong, which contributes to the increase in prices.
While house prices fell by 1.3% in August, according to Rightmove, the property portal said this was the usual slump in August. With people going on holiday, the housing market slows down, before it picks back up when the main holiday season is over.
So it is likely that house prices will rise again in September, given how high buyer demand still is. And while stock levels have increased, they are still lower than demand. However, it is not yet clear how steep the rise will be.
Bank Of England Urged Not To Increase Interest Rates Further
The Bank of England (BoE) is expected to further raise interest rates this month to bring inflation under control. Experts forecast a possible rise to 2.25%.
But the property industry is urging the Bank not to do so. Property professionals argue that inflation has dropped to 9.9% earlier in September. And the recently announced energy support package for households and businesses is said to lower inflation to 5%, according to government sources.
Furthermore, consumers have reduced their spending, which is what the BoE wanted to achieve by rasing the base rate.
I hope that in light of increased energy costs and indeed everything else as we approach winter, interest rates are not increased. The mortgage market is split into three, with a third having no mortgage, a third on fixed rates and a third on variable rates.Jonathan Rolande, Spokesman for the National Association of Property Buyers