(Bloomberg) -- The Labour government’s aim to add 1.5 million homes in five years is likely to be thwarted by labor shortages and planning issues, according to RBC Capital Markets.
The UK is unlikely to build more than 250,000 homes a year during Labour’s first term, which would equate to a five-year shortfall of at least 250,000 units, according to Anthony Codling, an analyst at RBC. Speaking at a roundtable event in London on Thursday, Codling said he expects around 190,000 homes to be built in the UK this year, meaning the government is already behind on its goal.
“You’ve had housebuilders not buying land and the planning system grinding to a halt due to a lack of home targets,” Codling said. “The easier way to boost the workforce would be to allow freer movement of workers from Europe.”
Spikes in interest rates and construction costs have limited the amount of homes built by the UK’s biggest developers in recent years, with numbers never rising enough to meet a series of targets from previous governments as the shortage keeps sale prices near record highs.
The Labour government, elected in July, has promised to overhaul the country’s convoluted planning system to unleash more building. However, almost no housebuilders believe the party will hit its target for new units, with 45% expecting no more than 1 million across the period, according to a Knight Frank survey.
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Limited brick capacity, partly stemming from a lack of investment in brick factories, and the need for housebuilders to fix unsafe cladding on existing properties will act as headwinds, according to RBC’s Codling. He said that modular housing — a term for factory-built homes — could be part of the solution, though developers have concerns about investing in factories that could prove costly if the housing market slumps.
“The beauty of the housebuilding model is as soon as times get tough, you turn off the taps,” he said, referring to employing construction workers instead of building homes off-site in factories.
Still, Codling said the UK government’s ambitions to fix the planning system should boost housebuilding over time. He said that building on poor-quality land in the protected green-belt zones around cities, known as the grey belt, could enable the construction of roughly 300,000 homes.
“It should help, although the interesting thing on grey belt is that social housing has to be 50%,” he said, referring to the share of homes in a development that must be affordable. That could be a viability concern for housebuilders, potentially restricting development, he added.
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