"Perhaps the new talks underway could create an opportunity for collaboration between developers, the Government, and regulators to coordinate efforts to stimulate both homebuilding and the first-time buyer market."
As figures reveal a rise in the number of under 45s renting, the need for new housing - and for the Government to meet its targets - is growing by the day.
Hamptons’ latest Lettings Index, based on English Housing Survey figures, reveals a role reversal over the past twelve months, with the under 45s now driving the growth in the rental market, compared to over 45s during the last decade.
Between 2013/14 and 2023/24, the number of renters aged 45-plus rose by 24% (from 1.43m to 1.77m). Meanwhile, over the same period, the number of renters under 45 fell by 1% (from 3.45m to 3.43m), despite an increase in the overall population during this time.
However, in the past year, there has been a sharp rise in the number of Millennials renting. Over the last 12 months, the number of under 45s renting increased by 149,000, bringing the total to 3.4m. In contrast, the number of over 45s renting dropped by 79,000 during the same period, possibly due to these renters having more time to save or benefiting from longer mortgage term options.
Under 45s paid £56.2bn in rent in 2024, accounting for 66% of all rent paid. Redirecting some of this spending towards helping them get a footing on the housing ladder wouldn’t be a bad idea. Encouragingly, the Government and regulators have hinted at potential changes to support first-time buyers, which would be a positive step.
Allowing lenders to allocate more than 15% of their total mortgage book to borrowers at over 4.5 times their annual income would help the first-time buyer market significantly. As would factoring in rental payment history as part of affordability tests, rather than focusing solely on income.
At a standstill
While mortgage rates are expected to come down this year, the end of the stamp duty holiday risks offsetting any savings for first-time buyers. In the absence of Help to Buy, perhaps the new talks underway could create an opportunity for collaboration between developers, the Government, and regulators to coordinate efforts to stimulate both homebuilding and the first-time buyer market.
Although the government has shown some positive signs with its housebuilding targets, the latest Housing Pipeline Report from the Home Builders Federation (HBF) makes for grim reading.
In Q3 2024, only 2,260 sites were approved for development - down 10% from the previous quarter - and the lowest number the HBF has tracked since 2006. Over the past year, the rolling annual total of approved sites has fallen to a record low of 10,180. Although the number of units approved in Q3 saw a slight 2% rise to 57,356, this figure is still 40% lower than the peak.
To meet the Government’s target of 370,000 new homes annually, approvals would need to rise by over 150%. And right now, we’re clearly nowhere near this.
Nobody to buy affordable homes
One of the biggest setbacks is the lack of buyers for affordable housing according to the HBF. At least 17,432 affordable homes with planning permission are currently stalled due to a shortage of Registered Providers (RPs) - local housing associations or local authorities who purchase these homes from developers and rent them out.
The HBF’s Bid Farewell report pinpoints 139 building sites across the UK that are delayed for this reason. As we know, when private house builders are given planning permission, local authorities require a percentage of the homes on the site to be affordable.
Normally, developers sell these affordable units to RPs at discounted rates, but the HBF says a combination of economic pressures and policy challenges has reduced RP participation in recent years. For smaller developers, this often means they can’t secure the development finance needed to begin construction. Larger projects can also be held up, it says, as the planning permission often requires the affordable element of the site to be delivered by a certain trigger point.
Just like mortgage borrowers, local housing associations will also have faced rising borrowing costs. With the expectation they offer rent at affordable prices, the numbers may no longer add up as they once did in a low-cost borrowing environment.
While the Government’s intentions might be good, you can’t help but wonder if they’ve underestimated the scale of the task. It’s perhaps now becoming clearer why those homes haven’t been built over the past decade and more.
It feels a bit like pulling on a loose thread in a jumper - each time we think we’re making progress, another problem unravels. The HBF warns if the affordable housing element of developments isn’t addressed soon, it could derail the Government’s 1.5 million homes plan. Meanwhile, younger renters are still struggling to get onto the property ladder, and the demand for affordable housing keeps growing.
Without enough homes to meet this demand, the UK risks creating a permanent generation of renters. Let’s hope that when the Government, regulators, and possibly lenders sit down at the table soon, it also helps give developers the boost they need to get building again.
