One of Labour’s key priorities over the next five years, reiterated in Keir Starmer’s “plan for change” speech last Thursday, is to tackle the UK’s longstanding issues around housing supply, affordability, security and quality.
To address the housing supply crisis, Chancellor Rachel Reeves plans to invest more than £5bn over 2025 and 2026 to deliver on the Government’s plans, including £3bn in small and medium-sized enterprises (SMEs) and the build-to-rent (BTR) sector.
However, the sheer scale of the challenge ahead means that the private rental sector will remain a critical part of the UK’s housing supply.
The magic number: 1.5 million
Welcome as it is, many stakeholders consider the highly ambitious target of building 1.5 million new homes in five years to be unrealistic. We need only think about previous governments’ failures to hit annual house-building targets. Moreover, the last time 300,000 new homes were built in England in a year was 1969.
Housing Minister Matthew Pennycook has refused to set annual targets and reportedly failed to convince the Commons’ Committee for Housing Communities & Local Government that the 1.5 million target is achievable. Local authorities are responsible for their own local house-building plans, while at the same time mandated to hit the Government’s top-down targets outlined in the National Planning Policy Framework (NPPF). To be a fly on the wall in those meetings…
Until plans are green-lit, however, the housing supply crisis is set to deepen. The Office for Budget Responsibility has forecast that the number of houses delivered in England this year will fall below 200,000. This lack of supply, coupled with record net migration numbers reported by the ONS for the year ended June 2023, has contributed to the continued resilience of UK house prices, with November’s Nationwide data showing a 3.7% annual growth rate (the highest in two years).
There are some green shoots, however, with National House Building Council (NHBC) Q3 2024 statistics showing that the number of new homes registered to be built in the UK rose by 40% in Q3 compared to the same period in 2023.
Unblocking planning
Labour support for environmentally friendly brown and greyfield sites will open up the BTR market, as more land becomes available for larger projects. Similarly, the Government’s investment in small housebuilders and the recruitment of new planning officers should help speed up building projects. Likewise, the Government plans to tackle construction labour shortages through training and diversity programmes. However, ultimately, the success or not of such an ambitious building programme relies heavily on the private sector.
A key proviso to the success of local house-building plans is that they are of a good quality standard and located in areas where people actually want to live – over 260,000 long-term empty homes in England should heed caution.
Right to Buy reform
But it isn’t solely about building new housing, it’s also important to maintain what housing supply we already have.
In the Autumn Budget, Chancellor Rachel Reeves reduced Right to Buy discounts from a maximum of £102,400 (£136,400 in London) to between £16,000 and £38,000, a move designed to protect the remaining stock of social housing.
While council tenants will still be offered the opportunity to buy their homes, the proposed changes could cork the leak of social housing properties to tenants-come-first-time buyers. However, it is doubtful whether social housing stock will ever recover its ‘share’ of the market, leaving the private rented market to fill the gap.
What does this all mean for BTL?
The scale of the imbalance between supply and demand is too significant to fix within a single parliament, which means that house prices will remain elevated while rents will continue to rise. In the short- to medium-term, this presents opportunities for landlords with cash to deploy.
As has always been the case with BTL, the strength of any investment proposition will depend on the dynamics of the local area, including the impact of any housebuilding programmes – private and public – and planning reform.
