Within its first King’s Speech, the new Labour Government has made bold policy announcements around housebuilding, such as introducing new mandatory targets and potential reforms to planning.
Head of Residential and Rural Agency, Alasdair Dunne, believes Labour’s support of new homes combined with a drop in base rates due to falling inflation could stimulate good housing market activity.
“There is no doubt that the residential market in the UK slumped last year. Transactions were at around 1 million, whereas a typical year would tend to see around 1.2 million. Because of high inflation, the Bank of England imposed a high base rate, resulting in high borrowing costs which inevitably slowed the market down. In addition, speculation around an upcoming election created uncertainty which naturally slowed market activity.
“Labour’s manifesto addressed this directly and claimed the number of homes being built was not high enough to stimulate the market. They were duly elected and will be under pressure to deliver on their promises.
“Its nationwide target to build 300,000 homes a year is admirable, around 225,000 per year was averaged under the Conservatives who scrapped targets, Labour is well disposed toward building new towns, and potential reforms to planning may help affordable new sites to come forward more quickly. But the market needs to be in the right place for these policies to have the desired effect.
“The key to getting the market moving again is the cost of borrowing. There is a lot of pent-up demand from frustrated home movers who are finding current lending rates unaffordable or are simply holding tight for better deals to be offered by lenders.
“If the much-anticipated drop in the Bank of England’s base rate materialises at the end of summer or early autumn, mortgage providers will be able to offer lower interest rates on their products, which will really stimulate market activity. In turn, a more active market will give housebuilders the confidence to step up their building programmes in the knowledge their homes will be in demand.
“While financial policy from the Bank of England and lenders’ reaction to that is likely to be the biggest driver market activity for the remainder of this year and into 2025, having a government determined to get the builders building will also help significantly.
“As you might expect from a government that has been in opposition in the last 14 years, Labour have made bold statements around housing and planning which on the face of it may seem difficult to deliver. But if inflation falls and stays under control like forecasts are saying and the Bank of England feel confident enough to lower the base rate, the market should significantly improve in autumn before really bouncing back in 2025.
“While Labour’s targets are ambitious, if the market plays ball, they might just achieve them.”
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