UK property developers are significantly altering their strategies in response to uncertain house prices, according to new research from Shawbrook.
Over the past three months, house prices have become developers' top concern. This, combined with a myriad of other pressures, is driving fundamental shifts in how - and where - new homes are built across the country.
Shawbrook’s research reveals that 23% of developers cite house price growth as their primary concern, narrowly followed by the challenge of obtaining planning permission (22%). Other key concerns include cost-of-living pressures on buyers (21%), sustainability and ESG commitments (21%), and difficulties accessing skilled labour and talent (20%). High mortgage rates (19%), rising material costs (18%), and limited government support for first-time buyers (18%) also weigh heavily on developers' minds.
As a result of these pressures, 99% of developers have made strategic adjustments to their business plans. The most prevalent change is altering the type of properties they build, a step taken by more than a third (35%) of respondents. This suggests a shift in development scale or product type to adapt to market realities.
Further strategic shifts include:
- Re-evaluating locations: 33% of developers are reconsidering their geographical focus
- Anticipating higher costs: 30% anticipate substantial increases in their operating expenses
- Changing how they build: 27% are exploring different construction methods or materials
- Pushing back start dates: 27% are delaying the commencement of new projects
- Facing market exit: A concerning 25% of developers say they may be forced to cease trading
On top of these challenges, developers are bracing for sharp cost increases. 30% predict an average rise of 35% in costs over the next 12 months. A third (33%) anticipate cost hikes between 21% and 30%, while 27% expect increases between 31% and 40%. Even more concerning, 16% project a 41-50% rise, and 12% foresee costs climbing by 51-60%.
Terry Woodley, MD of Development Finance at Shawbrook, commented: “Our research highlights the challenges currently confronting developers and the wider housebuilding industry in general.
“Rising costs, planning hurdles and market uncertainty have created a perfect storm which has been exacerbated by fluctuating house prices. However, despite the headwinds of the past 12 months, there’s still plenty of reason for optimism. Recent Government announcements, such as the Planning & Infrastructure Bill, could help cut red tape and accelerate progress, paving the way for increased housebuilding. Despite challenges, developers have shown remarkable agility, adapting their strategies to remain robust and profitable in a tough environment.
“One thing is clear: to overcome current barriers and make real inroads towards the Government’s housebuilding targets, a collaborative, multi-pronged approach is essential.”
