Housebuilding falters as construction slowdown deepens

The UK’s residential construction sector has taken a significant hit, with new starts declining sharply amid economic uncertainty and cooling investor sentiment. According to the latest Construction Index from Glenigan, covering the three months to the end of February 2025, housebuilding has reversed the resilience it showed in the previous period, posting a 10% drop in project starts compared to the preceding three months and a 14% decline year-on-year.

The private housebuilding sector saw a 10% fall over the period, down 12% compared to the same time last year, while social housing starts were even worse affected, plunging by 24% year-on-year. The figures highlight growing concerns over financing conditions, waning consumer confidence, and uncertainty surrounding government spending plans, all of which have cast a shadow over the market.

The latest downturn has been attributed to a combination of factors, including higher borrowing costs, affordability constraints, and uncertainty surrounding the UK government’s fiscal plans. Glenigan’s Economic Director, Allan Wilen, cautioned that optimism in the housing sector, bolstered by recent gains in market activity and house prices, may have been premature.

“The drop-off may reflect a scaling back of expectations regarding the timing and strength of the economic upturn, consumer spending, and the housing market this year,” Wilen noted. “Whilst housing market activity and prices have picked up in recent months, momentum is likely to slow once the new Stamp Duty regime kicks in from April. Financing issues, especially unfavourable credit conditions, also appear to be a factor, particularly for smaller housebuilders.”

Higher mortgage rates and affordability constraints have weighed on prospective buyers, leading developers to adopt a more cautious approach to new projects. Housebuilders are now bracing for a potential slowdown in demand, which could put further pressure on output in the months ahead.

The social housing sector has been particularly hard hit, suffering a dramatic 24% year-on-year drop in project starts. The decline highlights the challenges faced by local authorities and housing associations as they grapple with constrained budgets and higher construction costs.

The government has promised increased capital funding for key departments in 2025/26, but Glenigan’s latest figures underscore the urgent need for swift deployment of these funds. Delays in public sector investment could exacerbate the slowdown, adding further strain to a sector already struggling to meet demand for affordable housing.

Beyond residential construction, the wider UK construction industry is facing mixed fortunes. While industrial projects saw a notable 50% increase in starts compared to the previous quarter, sectors such as education (-31%), hotel and leisure (-29%), and office developments (-20%) recorded significant declines.

The sector is also wrestling with rising costs, including increases in the minimum wage and employer National Insurance contributions. These pressures have led some developers to pause projects as they adjust their budgets, further dampening construction momentum.

Despite the overall downturn, some regions have bucked the trend. Northern Ireland emerged as a standout performer, with construction activity surging 44% in the last three months and an impressive 76% year-on-year. The South West also recorded strong results, up 15% against the preceding three months and 18% annually.

In contrast, London and the South East struggled, with project starts tumbling 9% and 21% over the last three months, respectively. Year-on-year, London saw a staggering 40% decline, underlining the challenges facing the capital’s construction sector.

The widespread decline in project starts serves as a warning sign for the sector, which has long been hoping for a sustained recovery. As developers and investors await greater clarity on public spending, the coming months will be crucial in determining whether the construction industry can regain its footing.

For now, however, the housebuilding sector remains on uncertain ground, with the outlook clouded by economic headwinds and investor hesitation.