Investment Case
The UK housing market
Housing supply challenges
The UK continues to face a chronic undersupply of housing, exacerbated by population growth and the need to replace ageing housing stock. The Government has pledged to deliver 1.5m homes over this Parliament1 equivalent to 300,000 new homes annually in England. Delivery is currently well below this with 162,710 new build dwelling completions in England in the year to June 20242, adding to the housing crisis. The Government has an ambitious affordable homes programme and we expect this to be a growing market in the coming years.
The planning system and limited land availability pose significant barriers to meeting housing demand with delays in planning permissions, compounded by local authorities pausing or withdrawing their housing plans in late 2023, hindering housing delivery. In addition, there are a number of homes currently held up by Natural England environmental mitigation measures regarding nutrient and water neutrality. The Government has pledged to improve the planning system, including reinstating local targets and hiring additional local authority planners with changes to the National Planning Policy Framework announced in 2024.
Our response
Despite the planning challenges we have not been waiting for policy changes to get approvals with the changes made to our planning approach over the past few years bearing fruit. During the course of 2024, we achieved planning on 13,064 plots, equivalent to 123% of plots utilised in the same period. This included a site in Bedworth which we acquired on outline planning in February 2024 and for which we achieved a reserved matters approval in December. We continue to engage proactively with policymakers to push for planning reforms and advocate for more streamlined, sustainable development processes.
Government target for new home additions over this parliament¹
1. www.gov.uk/government/news/housing-targets-increasedto-get-britain-building-again.
2. www.gov.uk/government/statistics/housing-supplyindicators-of-new-supply-england-april-to-june-2024/ housing-supply-indicators-of-new-supply-england-april-tojune-2024.
Affordability and market trends
The UK experienced a technical recession in late 2023 with two quarters of GDP decline. By early 2024, the economy had showed slight improvement, with estimated GDP growth of 0.8% in 2024, up from 0.4% in 2023¹. While inflation has come down from the peak, helped by higher interest rates, the Consumer Price Index remains above the Government’s 2% target which has led to concerns over interest rates staying higher for longer. This has a knock-on effect to mortgage rates and affordability remains a key barrier for customers, particularly first-time buyers post the removal of Help to Buy in late 2022. Over the past 12 months affordability has been on an improving trend as house price growth has not kept pace with wage inflation and mortgage rates have started to come down. As at November 2024, the average two-year fixed rate for all loan-to-value (‘LTV’) products had reduced to 5.39% from 6.29% a year earlier with two-year fixed rate 95% LTV mortgages at 5.83%, down from 6.14% a year earlier².
Housing associations are currently facing funding challenges in relation to the purchase of homes delivered through section 106 agreements stemming from a perfect storm of rising costs, reduced funding, market pressures and policy uncertainty. This has created some uncertainty over demand for this tenure of homes in the short term while consultations over social rent increases and funding programmes are finalised.
Build to rent (‘BTR’) is becoming a more important part of the UK market, with a total of £5.1bn invested in 2024³ of which c.50% was for single family housing.
Our response
We continue to offer a range of homes at different price points with our core Persimmon Homes private average selling price of £273,318 well below the national average, offering quality homes which are affordable. With notable disparities in housing prices across the UK regions, our national coverage offers some protection from the more challenging markets in the South of England. We have been focusing on making sure we are making the most of our three strong brands. Our Charles Church brand offers a premium product and we are seeing the benefits of improved specification and opportunities for dual branding at sites alongside Persimmon Homes. We have also built relationships with partners in the private rental sector market and are seeing good demand for our high-quality homes for this growing segment of the market. Through our Westbury Partnerships brand we continue to work with partners to deliver high-quality homes for the affordable homes market.
1. www.ons.gov.uk/economy/grossdomesticproductgdp/ bulletins/gdpmonthlyestimateuk/december2024#annualoverview.
2. www.moneyfactsgroup.co.uk/media-centre/group/mortgage-product-choice-and-shelf-life-plummet/.
3. www.savills.co.uk/research_articles/229130/373389-0.
Labour and build cost pressures
The UK construction industry faces persistent challenges from labour shortages, driven by an ageing workforce and skills gaps, which limit productivity and increase build costs. Negative perceptions of the industry and a shrinking pool of skilled workers have exacerbated delays in meeting demand. To address these issues, the sector increasingly relies on apprenticeships and graduate programmes. While build cost inflation eased in 2024 compared to the highs of 2023, its impact continues to affect projects started before and during this period which are still under construction.
apprentices within the business
supply chain jobs supported
Our response
We mitigate as many of the supply chain challenges as possible by leveraging our vertically integrated manufacturing facilities and securing robust supply chain agreements to manage material costs.
Our proactive recruitment of apprentices and our partnerships with educational institutions will help address labour shortages in the long term and ensure continued productivity across our projects.
We believe that the strategic use of off-site manufacturing is essential for addressing skill shortages and enhancing construction efficiency in the longer term. We continue to work with partners on developing a commercial brick facade product for use with our timber frames which would significantly improve the speed of build. During the year we built a prototype house in five days from slab to roofed in using the brick facade at our Space4 factory in Birmingham.
Regulatory shifts
The planning environment continues to be challenging, although there are positive signs that this might improve under the new Labour Government. Labour has pledged to deliver 1.5m homes over the next parliament and reform planning to improve supply by reinstating local housing targets, prioritising affordable and sustainable homes, empowering local authorities and streamlining processes.
In February 2024, the Biodiversity Net Gain legislation came into effect requiring a 10% net gain on all new projects.
The upcoming Future Homes Standard (‘FHS’) is a UK Government initiative aimed at ensuring that new homes built in England are more energy efficient and environmentally friendly. It is part of the Government’s broader strategy to achieve net zero carbon emissions by 2050 and while an exact date has not yet been set it is expected to come into force in 2027.
During the year, in addition to the Building Safety Remediation Programme, the Government proposed the introduction of a Building Safety Levy to fund the remediation of unsafe cladding on high-rise residential buildings. While the exact date or format for the implementation of these changes has not been specified it is expected to be towards the end of 2025.
Our response
While planning reforms are expected to ease supply constraints in the medium-term, we are continuing to utilise our diverse, high-quality short-term and strategic land banks to meet market demand through our enhanced planning approach. Our ongoing focus on sustainability, with trials of low-carbon building methods, ensures we remain aligned with regulatory expectations and broader environmental goals. In preparation for the forthcoming Future Homes Standard (FHS) and as part of our implementation of the New Build Heat Standard in Scotland, we have developed energy transition plans for all our developments. This ensures that we phase out the installation of gas boilers while considering the appropriate timescales and commercial needs. Ahead of the regulatory requirements, we have already started installing low-carbon design and heating solutions, such as air source heat pumps.
plots achieved detailed planning in 2024
