The UK residential construction sector entered the final quarter of 2025 under significant strain. Despite government ambitions to deliver 1.5 million new homes by the end of this parliament, the reality on the ground tells a different story. Weak housing activity, rising operational costs, and subdued buyer demand have combined to create one of the most challenging environments for housebuilders in over a decade.
In the run-up to the 2024 election, both major parties pledged bold housebuilding targets. Labour set the most ambitious goal: Delivering an additional 1.5 million homes in England by the end of 2029, which implies an average annual build rate of 300,000 completions over five years. This commitment formed a central pillar of its election platform and contributed to its victory. I examined the feasibility of this target in my June 2024 Euroconstruct article, and as anticipated, seventeen months on, delivery is well off pace. Net additional dwellings in England totalled 208,600 in 2024/25, a 6% decline from the previous year. This picture is further reinforced with official figures from the Department for Levelling Up, Housing and Communities (DLUHC), showing that total completions in England dropped to 70,670 in H1 2025, down 12.6% from 80,900 in the same period a year earlier. At the current pace, the wider 2025-26 net additional dwellings are unlikely to surpass the 2023–24 level of 221,000, well below the government’s implied 300,000 home benchmark toward its overall target.
“Current pace requires a 45% uplift to meet the target.”
More recently, industry hopes for a fiscal boost were dashed in the Autumn Budget on 26th November, which offered little support beyond reaffirming the housing target. While the Budget provided no direct stimulus for housebuilding, it did scrap a proposed overhaul of landfill tax that would have imposed further costs on residential developers from April 2026. The plan to merge the lower inert waste rate (£4.05 per tonne) with the standard rate (£126.15 per tonne) was abandoned. Although the lower rate will still double to £8.65 per tonne from April 2026 this adjustment avoids a 3,000% increase in disposal costs. For housing schemes, this change could have added £8,000–£12,000 per home, rendering many projects unviable.
The lack of meaningful support is not limited to fiscal measures. Planning remains a major bottleneck, with national approvals stuck at historic lows despite government pledges to reform the system. In Q2 2025, just 42,239 homes were approved, down 19% year-on-year and the weakest Q2 figure since 2012. Developers report consents now take 18 months or more, double pre-2020 timelines, due to stricter environmental checks and local authority resource constraints.
This national slowdown is mirrored at the regional level, with London illustrating the scale of the challenge. Once a key driver of UK housing supply, activity has collapsed. Private housing starts have more than halved, with just 731 homes started in H1 2025. Planning permissions have also hit record lows, and completions fell 12% year-on-year to 30,000 homes. Regulatory requirements under the Building Safety Act, high affordable housing quotas and weak sales have rendered many schemes unviable, a trend increasingly visible across several European capitals.
From bricks to bills: Why UK housebuilding costs won’t ease
Despite the scrapped overhaul of landfill tax, housebuilders continue to face relentless cost pressures with little sign of relief. Global supply chains have stabilised somewhat, but cumulative increases since 2020 have left material and labour costs at historically high levels for developers. Prices for key inputs, such as pre-cast concrete, cement, sand and gravel, bricks and blocks, are around 50% higher than five years ago. These increases are now embedded in the market, making cost reductions unlikely in the near term.
These costs are reflected in brick deliveries which fell 4.2% year-on-year in October 2025. Brick volumes remain well below pre-2023 levels, highlighting the widening gap between government housing targets and actual construction output.
“Imbedded cost pressures constrain the potential uplift.“
Labour shortages add another layer of pressure. Construction wages rose by 4.8% year-on-year in 2024 as firms sought to remain competitive, and this upward trend has continued into 2025. Further increases are expected following the 4.1% rise in the National Living Wage, scheduled for April 2026 following the Autumn Budget announcement. At the same time, the Construction Industry Training Board (CITB) forecasts a shortfall of 250,000 workers by 2028. Skilled trades are commanding premium rates, making wage inflation the biggest cost driver for many projects, compounded by declining numbers of apprentices and entry-level recruits.
Compliance costs are also climbing. The new Building Safety Levy, launching in October 2026 to raise £3.4bn over the next decade, will add between £12.70 and £100.35 per m² of cost depending on the local authority where the site is located. On top of this, The Future Homes Standard (FHS), set for mandatory compliance by late 2027, is expected to add around 4–8% to build costs per home, largely due to heat pumps (£9k–£15k), triple glazing, and advanced insulation.
Looking ahead, additional energy and carbon compliance obligations, aimed at improving housing quality, sustainability and safety, are driving up costs at a time when developer margins are already under severe strain. This is further dampening prospective construction activity and making long-term planning increasingly difficult.
Buyer blues: Weak buyer demand continues to undermine future activity
Buyer demand is the lifeblood of private housebuilding. When sales slow, developers cannot sell homes off plan, which is a critical source of cash flow. With sales rates collapsing, projects are being shelved and starts scaled back. Unsold stock ties up capital while lenders tighten credit for schemes lacking pre-sales, creating a vicious cycle that further depresses housing output.
As such, the current demand side of the housing market offers little relief. The latest RICS survey shows that agreed sales were in negative territory ahead of the Autumn Budget, with new buyer enquiries at -24% in October. This marked the weakest reading since April, when the reduction of Stamp Duty thresholds kicked in, increasing upfront costs for many prospective buyers.
Mortgage costs also remain a major drag on buyer demand. Despite a modest easing in 2025, two-year fixes hover around 4.8% to 5.2% and five-year deals around 4.5% to 4.9%, compared with sub-2% rates in 2021. Consequently, millions of households will roll onto higher rates between now and 2027, with some facing monthly payment hikes of over £500, further suppressing transactional confidence.
“Mortgage rates remain elevated, dampening demand.“
Government support for buyers has also weakened. The end of the Help to Buy scheme in March 2023 marked the first time in nearly a decade that first-time buyers were without a flagship equity loan scheme. Lifetime ISAs remain a savings vehicle for first-time buyers, but this support has been capped at homes valued at £450,000 since 2017. Optimistically, the government plans to consult in early 2026 on replacing LISAs with a simpler product for first-time buyers, aiming to remove penalties and update the outdated property price caps. Until then, government support remains limited despite their ambitious target.
At the same time, affordable housing delivery is also faltering. In the six months to September 2025, 11,474 affordable housing starts were recorded, down 12% year-on-year, with completions at 10,309 units. Other falls reported during the same period included Social Rent starts (-38%), Affordable Rent (-24%), and Intermediate schemes (-68%). The Home Builders Federation warns that around 8,500 affordable homes due to be built in 2026 are at risk as housing providers pull back from Section 106 contracts, while 900 completed homes stand empty and over 2,200 units remain uncontracted. Section 106 homes account for roughly 45% of affordable housing delivery, making this a critical roadblock slowing both affordable and private housing output.
Closing thoughts: Ambition without action
The government remains firmly committed to its pledge of delivering 1.5 million additional homes by the end of this Parliament, yet current policy support for builders and buyers falls far short of what is needed to turn that ambition into reality. Planning reform has stalled, cost and labour pressures continue to mount, and buyer confidence is weak. Affordable housing delivery is slipping, while private developers face a vicious cycle of slow sales and constrained finance.
Without decisive government intervention, streamlined planning, meaningful fiscal incentives, and stronger support for first-time buyers, the sector will struggle to break out of stagnation. For now, the 1.5 million homes target looks less like a roadmap and more like a distant aspiration.
