The UK’s three biggest housebuilders are cutting back on new projects as they adapt to a downturn in the property market, adding to fears that a national housing supply crunch is set to worsen.
FTSE 100 developers Taylor Wimpey, Persimmon and Barratt Developments all said in updates this week that they would ease up on buying new land and developing it.
The trio pointed to economic uncertainty, a jump in mortgage rates and the imminent end of the government’s Help to Buy scheme as reasons to be cautious. Spiralling costs for homebuyers have contributed the most to a cooling of the housing market in recent months.
Chris Millington, a housing analyst at Numis, forecasted that the number of new homes built will fall by around 25 per cent year on year in 2023. “That’s similar to the first year fall off after the [2008] financial crisis, I’ve only witnessed a fall off like this once before,” he said.
Persimmon estimated that the monthly cash cost of mortgage payments for some first-time buyers has approximately doubled over the past year due to the withdrawal of the Help to Buy equity loan and a jump in mortgage rates.
That has forced prospective buyers to pause their searches and, according to Persimmon, “it is too early to predict when there will be a recovery in demand.”
The developers are hunkering down as a result, reining in new land buying, freezing hiring and weighing job cuts.
Collectively, Taylor Wimpey, Persimmon and Barratt built almost 50,000 homes last year and a slowdown in construction would have a material impact on the UK’s housing supply.
As well as a tougher economy, housebuilders are concerned about changes to the planning system proposed by prime minister Rishi Sunak which will dilute development targets and give local communities more power to rebuff proposed new housing.
“The proposed changes tip the balance . . . we’re going to be more hamstrung and I don’t see any outcome other than a reduction in the overall number of homes planned for,” said Jennie Daly, Taylor Wimpey’s chief executive, on Friday.
Her company and others are bracing for a slower sales market and a tougher planning environment, which is likely to weigh on housing supply for years to come.
On Wednesday, the country’s largest housebuilder Barratt warned that a “marked slowdown” in the housing market has led it to “significantly” cut back on buying new land and introduce a hiring freeze.
As well as buying less new land, Taylor Wimpey has launched an internal consultation which could lead to redundancies, as the business looks to cut £20mn in annual costs, according to Daly.
“When we slow down on land acquisition it does play through to overall volumes [of new homes built] in the next few years,” said Daly.
Housebuilding across the country peaked in 2020, when 242,700 new homes were built. Even that was some way short of a government target to build 300,000 homes a year by 2025.
But since then development has slowed and Sunak has indicated that he will abandon the 300,000 target, as well as row back from planning reforms which would have made new construction in parts of the country more straightforward.
Coupled with the fact that developers are easing off due to the tougher housing sales market, that will exacerbate the UK’s housing supply crunch.