Pipeline Under Pressure

Posted by Knight Frank Newcastle on 3rd July 2025 -

The opening line from the Housing Section in this month’s Spending Review could not have been clearer: “A major shortage of housing is one of the country’s biggest blockers to growth”. In this context, increasing housing supply is becoming a cornerstone of the country’s economic strategy.

Changes to the National Planning Policy Framework (NPPF) introduced in December last year are intended to reverse this trend, alongside a series of more recent funding announcements from the Spending Review. It’s hard not to be a little encouraged by some of the detail. The £39 billion commitment to a new 10-year Affordable Homes Programme, for example, which is ringfenced for the delivery and facilitation of affordable housing, comes at a time when more funding to unlock affordable housing is desperately needed. 

The creation of a new National Housing Bank, backed with £16 billion of new financial capacity, should also help ease some of the financial constraints faced by the sector.

The long-term ambition is clear. However, the reality on the ground is more complex.

Indeed, despite these efforts, the supply pipeline remains under pressure. The latest government figures - marking the first data release since those NPPF reforms - show a further 3% annual drop in new home permissions, down to 234,945 homes. More significantly, full planning consents have fallen 30% since their 2021 peak. The continued fall in consents means completions will remain subdued in the near term.

London accounted for 19% of all residential consents, the highest of any region – a reminder, perhaps, that there is huge potential to build at higher densities areas where infrastructure is in place. Yet, this is also where the biggest challenges exist. Delays at Gateway 2, rising construction costs, planning bottlenecks, stricter affordable housing rules, as well as weak demand for Section 106 units are all contributing factors. In London, early and late-stage affordable housing reviews are making some schemes unviable.

Reform momentum vs reality

While 45% of volume and SME housebuilders we surveyed as part of our upcoming Q2 Land and Development Report said they plan to submit more applications over the next year, the lag between application and approval means the impact of reforms will take time to materialise. In the meantime, new homes made up just 8.2% of total listings in May - well below the pre-pandemic average of over 10%.

There are, however, modest signs of recovery. More than a fifth of developers are expecting new home sales to rise in the second half of the year, with 54% believe falling mortgage costs will be the key that unlocks demand. Although the Bank of England held the base rate at 4.25% this month, lenders are offering competitive deals, many below 4%. Lending at 90%+ loan-to-value, common among first-time buyers, hit its highest level in 17 years in Q1.

Recent trading statements from some of the big housebuilders confirm that cautiously optimistic outlook. Bellway said it expects to sell between 8,600 and 8,700 homes in the year through July, up from previous guidance of "at least 8,500" and an improvement on the 7,654 homes sold a year earlier. 

That’s not to downplay that risks remain. Geopolitical tensions, particularly in the Middle East, could trigger oil price spikes and renewed inflationary pressure. But domestic market fundamentals are relatively strong, offering developers a window of opportunity. Those advancing projects now may find themselves well-positioned in a market facing a near-term supply crunch.

Labour shortages creep up the agenda

Another pressing concern is labour. Planning reforms alone won’t solve the housing crisis if there’s no one to build the homes. 

More than 80% of respondents to our housebuilder survey said they are concerned about employment levels in construction, with 50% ‘very’ or ‘extremely’ worried.

This isn’t new news. But what is concerning are the 40% of respondents who said they’ve struggled to hit build targets due to workforce shortages. Bricklayers are the most in-demand trade, followed by carpenters and plasterers.

That means supply will remain relatively tight and continue to support prices.