Editor's note: This brief was summarised by The Property AI Newsroom from a report by Property Industry Eye. Read the original article for full details.

Rising Costs and Regulations Hinder UK New Homes Target

The UK government's target to build 1.5 million new homes before the next election is now considered unachievable. Rising costs and increased regulation are cited as major reasons for the slowdown in new home construction.

The report highlights that while most estate agents do not earn significant income directly from new home sales, the health of the new homes market is crucial for the wider property sector. For example, the availability of suitable new homes enables homeowners, such as elderly couples looking to downsize, to move and trigger further transactions down the property chain.

Several factors are making it difficult for developers to achieve viable profit margins. These include recent price falls in many areas, persistently high land costs, and a significant increase in the cost of building new homes. According to the Home Builders Federation, it now costs £76,000 more to build a home than it did in 2020. This increase is attributed to a combination of higher landfill tax, increased community infrastructure levy, rising building material and labour costs, and more complex and expensive planning applications.

Additional regulatory requirements, particularly for high-rise buildings, have also added to costs. The introduction of mandatory second staircases and enhanced fire regulations following the Grenfell tragedy have reduced the number of saleable flats per floor, impacting the gross development value of projects.

The cost of providing social housing is another significant factor, with some developments requiring up to 50% social housing, further reducing profitability for developers.

The report suggests that while some factors, such as land prices and market confidence, may improve naturally with economic recovery, other barriers could be addressed by government action. These include potential reductions in landfill tax, community infrastructure levy, and regulatory requirements for second staircases, as well as changes to minimum wage and employer National Insurance contributions.

For letting agents and inventory clerks, the ongoing shortage of new homes and the challenges facing developers may continue to impact the availability of rental properties and the overall movement within the UK property market.