Building blocks of growth: How housing holds the key to UK economic success
As global headwinds intensify, the Government's focus on housebuilding offers a vital path to boosting GDP and unlocking a more accessible housing market
As another week of global economic and geopolitical difficulty impacts on the UK the need to boost economic growth increases in importance.
The Government’s desire to promote economic growth has only increased in importance over the last week. Our ability to rely on a global system of free trade has disappeared almost overnight and the strength of big economies like the USA and China has been reinforced. GDP growth figures of 0.5% for February are a very small positive sign. More and more we need to ask how can the UK economy accelerate an upwards trajectory?
The bricks and mortar solution: Housebuilding as an economic catalyst
Increased levels of housebuilding will be essential to growing the economy. This has been recognised by the Office for Budget responsibility and the Government who have been eager to highlight the OBR’s assessment of the economic impact of reforms to the planning policy framework.
The new NPPF is estimated by the OBR to increase annual housebuilding by around 30% by 2029-30, taking net additions to a 40-year high, and resulting in an additional 170,000 homes over the forecast. This will increase the level of GDP by 0.2% by 2029-30, adding £6.8 billion to the economy
The OBR states that:
“Planning reforms are set to have the biggest positive growth effect that the OBR has reflected in its forecast for a policy with no fiscal cost.”
Alongside the increasing need for action to increase economic growth the clear economic benefits of building more homes are increasingly making the Government making it a priority exactly the right move.. This isn't just about shelter; it's about laying the foundations for significant economic expansion.
Builders not blockers
Government is set on its plan to reform the planning system and we’ve regularly heard the Prime Minister said the Government would seek put “builders not blockers first.” This approach was reinforced from almost day one of the Labour Government when they announced changes to the National Planning Policy Framework and has been followed up with the announcement of £2bn of social housing funding and the Planning and Infrastructure Bill.
Alongside the PM, the Chancellor, Deputy Prime Minister and Housing Minister have all consistently backed the “builders” with the approach also being reflected by Energy Secretary Ed Miliband in his quest to build more green power production.
Despite this Government unity some disagreement from the Labour side is starting to emerge as the Planning and Infrastructure Bill makes its way through Parliament. Some Labour MPs won’t support housebuilding to the same extent as the Government and others might be more focused on local issues as they look towards the next election.
An example of the concerns being raised is this article by Labour MP Chris Hinchcliff and also worth reading this excellent rebuttal by Sam Dumitru .
These disagreements will play out in the House of Commons as the Bill is discussed and amendments put down. There maybe temptations for Government to soften its position to avoid too many public disagreements with their own MPs but we should hope the focus remains on the long term goal of more good quality homes and economic growth.
Given the economic pressures on Government, it seems likely that they will continue to back their reforms over criticism from MPs. The headline of the MHCLG release about the Second Reading of the Planning and Infrastructure Bill makes this clear: Deputy PM tells Parliament: Back reforms to get Britain building. Delivering a policy change that doesn’t have a fiscal cost will be their priority in current the current economic situation.
To tell a story of success at the next general election people will need to not just see economic growth in GDP data but also feel the benefits themselves. Building more homes, of all types and tenures will ultimately benefit everyone.
Beyond Bricks and mortar: Addressing renters and first time buyers
Beyond increasing housing supply Government activity has been heavily focused on private rented sector reform and driving regulatory reform to support home ownership.
Long awaited changes to the private rented sector have been at the top of the Government’s agenda over recent months. The Renters’ Rights Bill is reaching its final stages in Parliament with it expected to receive Royal Assent in the next couple of months. At the same time DESNZ is consulting on the next step in PRS Minimum Energy Efficiency Standards (MEES) with its consultation set to close on 2 May.
These reforms have been a long time coming having been impacted by the pandemic and concerns over the impact of changes on landlords. Some of the measures in the Renters’ Rights Bill, most notably the end of Section 21 “no fault” evictions were originally announced in 2017 and if the 2020 consultation on MEES had proceeded as planned landlords would have been facing up to a deadline this year for an EPC C minimum for new tenancies.
These are two sizeable sets of reform which landlords will have to address over the coming years. They come on top of other changes that have impacted the sector including tax changes which impacted the deduction of mortgage interest for income tax purposes, other regulatory changes over recent years and the impact of higher interest rates.
Landlords have reacted to these changes by reducing their investment in the sector. The percentage of landlords planning to increase their portfolio in 2018 was 11% and this fell to 7% in 2024. At the same time landlords planning to decrease their portfolio rose from 16% in 2018 to 31% in 2024.
This has impacted on rents, causing them to increase significantly as renters are competing over a smaller number of properties. Average UK monthly private rents increased by 8.1%, to £1,326, in the 12 months to February 2025 and over the last four years rents have risen by 28% (£294).
Government will be hoping an increase in housing supply will support more current renters into home ownership and removing some of the regulatory barriers to becoming a first time buyer has been a key part of their push on regulators to support economic growth. The Chancellor’s remit letter to the FCA called them to have regard to:
Reinforcing financial inclusion and supporting home ownership to enable individuals to access the financial services and products they need to fully participate in the economy, including the government’s commitment to making home ownership more accessible by fixing the planning system and building 1.5 million more homes, and supporting first-time buyers who struggle to save for a large deposit.
This clearly links enabling people to buy a home to the building of the 1.5mn additional homes. Regulatory measures such as requirements around stress testing and limits on higher loan to income lending seem to be the type of change the Government is looking for. Actions from regulators over the coming months will see the extent to which they are reflecting the Government’s request.
While supporting more first time buyers is essential and reflects ongoing demand for home ownership the private rented sector must continue to receive government support to ensure it meets its unique role in the housing sector. It is the only sector that can offer the flexible and relatively easy to access housing which is essential to a thriving economy.
People moving for new job opportunities or to study are likely to rely on the PRS, at least initially for a home. A PRS which is too small will restrict economic growth by reducing opportunities to move to thriving economic centres in our town and cities. More widely it could reduce social mobility and reinforce the benefits of coming from a wealthy family located near a big town or city.
Building a brighter future: More homes, more opportunity
The government's decision to place housebuilding at the heart of its agenda is a positive strategic move with the potential for significant economic and social benefits.
Beyond the GDP figures, increasing the supply of diverse housing options can lead to a more equitable housing market, where more people can access a home that meets their needs and aspirations.
By maintaining its focus on building more homes, while also ensuring a thriving market for first-time buyers and a robust private rented sector, the government can pave the way for a more prosperous and accessible housing future for all. The foundations for growth are there; it's time to build on them.