Labour's hopes of a building boom are fading

Telegraph

3 days ago

The Government's entire economic strategy can be summed up in one phrase: planning reform.
This is front and centre of every response to poor GDP figures, in every speech on the economy and high up in any list of government 'achievements'.
It doesn't seem to matter that taxes on business have gone up massively and employment regulation is about to do the same. That is all fine because of planning reform.
In her Spring Statement for instance, the Chancellor stated that these reforms would mean the Government was now 'within touching distance of delivering our manifesto promise to build 1.5 million homes in England in this Parliament'.
The result of all this housebuilding would be, according to the Office for Budget Responsibility (OBR), an increase in GDP worth 'an additional £3.4bn' by 2029/30.
Delivering this level of housebuilding is therefore crucial to the Government's economic and political success. The early signs are not good, and this should be a major cause for concern in the Treasury.
First, the OBR's assumptions for this economic impact are nothing short of heroic. They state that net additions to the housing stock will increase from 192,000 this year to 305,000 by 2029/30. A near-60pc increase and a 40-year high in terms of net additions.
They are also forecasting a booming property market with transactions rising from 1m in 2023 to 1.472m in 2029. Turnover rate in the housing market will apparently rise to 4.58pc by 2029. Other than the Covid market surge in 2021 – when stamp duty was eased – that would be the highest annual turnover rate in 20 years.
No one in the industry thinks these forecasts are realistic. And for good reason.
The Home Builders Federation's recent housing pipeline report shows that the number of residential planning approvals actually fell by 37pc during the first quarter of 2025. The 50,610 units that these approvals will deliver was the lowest quarterly figure in nearly 12 years.
In certain key regions things are even worse.
Data from Molior shows that in London, where Labour has been in charge for years, just over 2,000 private homes began construction during the first half of this year. That is just 4.9pc of the Government's 44,000 half-year target.
It could be fairly argued that the Government's planning reforms have yet to kick in. The OBR says most of the increase will happen from 2026/27.
But things do not look good on that front either. Molior is forecasting that London will deliver just over 5pc of the 176,000 homes that the Mayor is targeting over the next two years.
And if that were replicated across the country it would be nothing short of disastrous.
If things continue along at the sort of rate we've seen since Labour came to power, rather than that which is currently in the OBR forecast, it will only be a matter of time before they look again at the numbers.
They do in fact warn that their projections for housebuilding contain 'several significant uncertainties' including constraints within the sector and local opposition to the reforms. To that they should add other government policies because since these reforms were announced ministers have done everything they can to hamper them.
They've already watered down some of their plans in the face of backbench opposition so environmental and nature campaigners will still be able to easily block new developments.
Any hope that Government backed affordable housing would help reach the target have been ended after the Spring Statement confirmed most of the £39bn trumpeted for this programme is back loaded into the next parliament. There's actually less money for affordable housing in the next crucial few years.
Added to all of this, the Government is actively making it more expensive to build new homes.
New levies, inherited from the previous Government, will add a few thousand pounds to the cost of each new home. And Treasury officials have managed to slip through a massive increase to the landfill tax, something the previous government rejected, that will halt many brownfield developments in their tracks.
So unless we see some new, additional and radical planning reforms for the OBR to take into account, at some point they will revise down the number of net additions they are currently forecasting. At which point the Government won't have an economic strategy left.
The minor planning reforms they have half implemented will count for nothing.
Instead of a housebuilding boom that delivers the economic growth that the Chancellor has promised, we are going to see the sector limp along like the rest of the economy because this Government simply doesn't understand that tax and regulation matter.