We have just released Q1 2024 of our Construction Market Intelligence Report which looks at market activity by sector and by region. It will be no surprise that we have reported for the first quarter that residential construction activity remains subdued, continuing to decline at the end of 2023, with the combined challenges of high interest rates, inflation and mortgage costs affecting sentiment throughout the year.
Furthermore, with the introduction of the regulatory requirements of the Building Safety Act and a planning system that remains extremely short of resources, developers have struggled with financial viability and the confidence to progress schemes.
But the beginning of 2024 has seen some green shoots of recovery and a brighter outlook for the market is forecast for the second half of the year. Mortgage lenders lowering their rates is an encouraging sign that the decline in the UK housing market appears to have bottomed out. With both inflation and interest rates expected to fall throughout 2024, the sector is becoming more positive on the outlook for both activity and property values.
This is reflected in the build-to-rent and purpose-built student accommodation sectors seeing an uptick in activity at the start of the year. Our national housebuilders, however, are likely to remain cautious until after the general election, which is expected in late 2024.
The impact of an election on the horizon
With an election on the horizon, the UK housing market is taking centre stage and anticipation swirls around policy initiatives, particularly from the Conservatives. Incentives for homeowners could lure first-time buyers back into the market, especially considering the increasing cost of renting. This, combined with the long-term requirement for new homes due to the expected population increase to 74 million by 2036 (ONS), gives hope for a turning point in 2024, when housing prices stabilise and much-needed market activity restarts.
My “sweet spot” prediction from last year? Inflation peaking, followed by a decline, and renewed activity fuelled by developer and funder confidence? While my timing might have been incorrect, the core idea remains valid. The second half of 2024 could still see this unfold, contingent on improved financial stability and continued positive signs like inflation cooling down in the US (a trend we often follow). This, coupled with easing construction material prices, could incentivise housebuilders to release their landbanks and address the urgent need for new homes. However, the recent controversial Barratt-Redrow merger adds another layer of complexity. While proponents point to increased efficiency, detractors worry that this consolidation will stifle competition and innovation, affecting affordability and construction pace.
Green shoots need a green backdrop
There are still significant challenges, ahead of us, particularly around sustainability. In 2023, we didn’t see as much progress as we would have hoped as an industry towards achieving net carbon zero – both in building energy efficient homes and retrofitting existing stock. We have only scratched the surface here, and there is still a mountain to climb with some big targets to meet. If we are to make significant progress towards meeting the decarbonisation targets set for 2030 and 2050, the government must invest appropriately and change its thinking. My concern is that, similar to the automotive sector, we may see the pressure removed with these targets pushed back.
If we really are going to look after the ‘green shoots’ we are seeing in the residential market, we not only need to nurture the conditions for them to thrive but also create a truly collaborative industry-wide housing policy to develop our sustainable housing stock for the long term.
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