According to Investec, around 241,000 housing units were given planning permission in 2024, which is 3% down on 2023 figures.
The report stated that the shortfalls in supply were greatest in the South East, the South West, the East of England and the West Midlands.
The South East had the largest shortfall, with 38,760 homes built during 2023-24 out of 50,000 in estimated annual housing need.
The South West’s shortfall was estimated at 8,990, while the East of England sat at 6,360 and the West Midlands at 3,210.
Investec said 69,500 net additional dwellings are added in this Parliament in these areas.
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The report noted that around 100,000-200,000 new family homes could be built on grey belt sites, with 40% located in London’s green belt area.
However, the report said land prices and cost inflation in construction have begun to normalise to pre-pandemic levels, which could “improve supply-side dynamics” as housebuilders are more willing to acquire land and develop homes.
It noted that house price inflation was around 4% and land price inflation was around 3%.
Investec said the key drivers in 2025 were planning and land availability, noting that planning was the main obstacle to boosting land supply, and buyer demand as a recovery in residential sales could drive land acquisition.
The report added that housebuilding cost inflation had slowed to 2% in 2024, which compares with 15% in 2022 and 10% in 2023.
However, it warned ongoing wage increases in construction could have a negative impact, with average wages up 4.5% in 2024 and further rises expected in 2025.
On the house price side, Investec said house prices have become “more affordable” in the last two years due to wage growth, slower house price increases and new-build sales incentives. However, such incentives could be withdrawn as sales improve.
The average UK house price is around £270,752, which is 3.4% up year-on-year.
Key drivers of house prices were interest rates and mortgage deposit requirements along with land prices and building costs.
Investec said the adoption of partnership models could boost the supply of new homes.
It explained that housebuilders can benefit from partnerships due to “lower development risk and reduced capital requirements”.
The firm pointed to alternative partnership structures such as development-led, investor-led and strategic partnerships. Investec said these had lower risk, capital light growth and more flexibility.
‘There are some positive signs in the market’
Aynsley Lammin, equity analyst for building and construction at Investec, said: “While we are currently not seeing the levels of construction needed to achieve the government’s targets, there are some positive signs in the market, with both land prices and cost inflation in construction beginning to normalise to pre-pandemic levels.
“As well as costs, the adoption of a partnership model – where local authorities and developers work together – may accelerate building levels. These collaborations reduce development risks and capital requirements, allowing for a more flexible approach to delivering new homes.
“By leveraging co-investment from housing associations and institutional investors, we can create a capital-light growth model that helps unstick the housebuilding process.”
