As a normal person, your focus yesterday was probably on the collapse of the established geopolitical order rather than the purchasing managers’ index for the construction sector. But for many normal people the latter could be very important, because it signifies that one of the government’s most important manifesto promises is currently looking unachievable.
A purchasing managers’ index, or PMI, is a survey of businesses – how many orders they have, what they’re spending, how many people they’re hiring – and these are seen as significant economic indicators. The figures released by S&P Global for the UK construction industry yesterday look very poor indeed: construction output and new orders in the UK are declining at the fastest rate since May 2020. The analysts’ conclusion is that this is “led by considerable reductions in residential building” and “a lack of new work in the house building segment”.
These are grim numbers for a government that promised in its manifesto to ensure that 1.5 million new homes are built by the end of this parliament. It also raises the question of whether the right people are being blamed.
So far, a lot of the conversation around Labour’s hoped-for housebuilding revolution has focused on planning reform and the dreaded “blockers”. This is politically sensible, because there are a lot of people out there who have been scarred by the arcane madness of the planning system. Younger voters are furious at Nimbys who prevent affordable houses being built and older, more right-wing voters are furious when hand-wringing newt-protectors get in the way of sensible brickwork.
The housebuilding industry is only too happy to support this view. Last month, Savills UK reported that new home delivery had dropped to a seven-year low (excluding Covid) and cited the planning system as the main villain. The report focused on a survey by industry body the Home Builders Federation, in which 88 per cent of developers (a record high) said planning delays were “ a major constraint on delivery”.
But the official statistics tell another story. Despite attempts by successive governments to charm housebuilders into building more homes, they are submitting ever fewer planning applications. The number of applications received in the year ending September 2024 was the lowest on record (going back to 2005), including 2020. The proportion of applications granted, meanwhile, is close to an all-time high. Here’s a chart I made this morning using government data:
I do have to admit to a small chart crime here, in that some of the planning applications granted in one year might have been granted the following year, but many are granted quickly – about half of non-major decisions take less than eight weeks. But the trend it shows, the direction of the lines are taking, does not support the argument that planning is the primary limit on housing supply, and that an overhaul of the planning system will lead to a massive increase in housebuilding.
Are housebuilders to blame, then? No, because they’re private business that are facing fairly high input prices (raw materials, wages) on one side, and low consumer confidence (high interest rates, economic uncertainty) on the other. Yes, the housing market is currently running hot, partly because a lot of people who want to buy homes are trying to do so before stamp duty rises on 1 April. But that is a market for houses that have already been built; housebuilders predicate their business on the direction they expect the market to take in future. As we can see from share prices of Britain’s big, publicly listed UK housebuilders since the Budget (the largest, Persimmon, has fallen 26 per cent in six months), the long-term outlook looks far from rosy.
If “the market” is more the enemy of housebuilding than “the blockers”, then there are two possible solutions. First is to fix the market – create a golden opportunity for housebuilders to get rich by building swathes of new housing, improve access to finance, train an army of skilled workers (or encourage them to immigrate to the UK). The second is to stop relying entirely on the market. When my mum moved into a council flat in south London in the 1960s, local authorities were building close to (and in 1967, more than) 200,000 homes a year. In 2023 they built about 4,000 homes.
It’s clearly true that nimbyism and planning slow the housebuilding the market wants to do, but the fundamental fact is that at the moment, the market and the government have different ideas about what would constitute success.
This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here
[See also: The fall of the mainstream media]
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