Jonathan Hulley is a Surrey County Councillor and Deputy Cabinet member for Strategic Highways. Jonathan is also a leading social housing lawyer, and former Conservative parliamentary candidate in Twickenham.
In her Autumn Budget, Chancellor Rachel Reeves landed a heavy blow on the construction and house building industries, with her National Insurance hike set to increase costs on an already strained housing sector.
Every construction project needs people.
They lay the foundations, build and plaster the walls, fit the kitchens and plumb in the bathrooms and with 2.1m people employed in the industry, just lowering the starting point for NI will cost £1.3bn. Increasing the rate of Employer NI will then add almost £900 per employee – making the total hit not far short of £3bn.
Employment costs are the most significant component in house building costs, and this level of increase will have direct implications for a sector already struggling to deliver the homes Britain needs. It is a move that threatens to push homeownership further out of reach, especially for younger generations facing significant hurdles in the property market.
For the first time in sixty years, the government has presented no new schemes to support first-time buyers—an omission that feels like an oversight, if not an outright dismissal of Britain’s housing crisis.
Moreover, the government’s target of building 1.5 million new homes over five years now looks even less attainable. On top of Reeves’ increase to National Insurance, the above inflation increase to the National Minimum Wage, paired with increased apprentice wages, will drive even more cost into an industry which has a high proportion of minimum wage employees and where planning permissions routinely require support for those learning a trade.
Leaders across the construction industry, including affordable and social housing advocates, warn that these changes could squeeze the construction and housebuilding sectors to the point of stalling. That will only bring lower housing output and fewer affordable options, deepening scarcity and pushing prices and rents higher still.
The National Federation of Builders (NFB) has sounded the alarm, noting that these rising expenses will likely deter construction firms from hiring the workers they need. NFB: How the October 2024 budget can deliver for construction.
Small contractors—operating on narrow margins compared to major players—will bear the brunt of this, particularly in high-demand regions like London and the Southeast. The result? Reduced building capacity in areas where the need is greatest. This comes on top of a further tightening of environmental standards which apply to new buildings, which came into effect in June.
The sensitivity of building economics to this is illustrated by the latest statistics on new build starts. A surge in starts in Q2 2024 has been followed with a huge drop in Q3 as contractors and developers raced to beat the increased costs these changes brought.
The pain extends further. Little noticed in the small print of the Budget is a tightening of tax relief on leased equipment.
Potentially, this reduces the incentive to invest in machinery that could drive productivity gains. The lack of provisions for full expensing on leased equipment was a missed opportunity for Reeves to incentivise growth and efficiency. Without this support, many contractors operating on already-thin profit margins will likely struggle, which could further deepen Britain’s housing woes.
At a moment when Britain needs more hands to meet housing targets, the increased NICs, higher NMW and Apprentice Wage uplifts, make hiring prohibitively expensive. The Chancellor’s decisions effectively shrink the construction and housebuilding industry’s ability to deliver on crucial targets.
Organisations like the Royal Institute of Chartered Surveyors and the Home Builders Federation have voiced their concerns over the absence of incentives for first-time buyers and the constraints on affordable home development. Broken ladder: Today’s first-time buyers face a decade of saving to afford a deposit
Mortgage accessibility remains a barrier for would-be homeowners, especially with high borrowing costs for first-time buyers who have higher loan-to-value ratios, further dampening the prospects for a recovery in home ownership. For a sector that needs both clarity and support, the Budget has delivered neither.
Whilst Reeves did add £500m to the current Affordable Homes Programme, this is significantly less than the increased costs driven by the other measures in her Budget. To that can be added a potential loss of funding from Right to Buy receipts. Over the 12 years since David Cameron’s government increased discounts, sales have delivered almost £1bn a year of extra funding for new affordable homes. As the discounts are slashed and mortgage rates stay higher for longer, how many families renting their homes from the local council will still be able to afford to buy?
If Britain is to meet its housing goals, the government must rethink policies affecting the housebuilding industry, balancing the need for fiscal discipline with the nation’s housing priorities. Cost pressures are mounting, and without a recalibration of economic policies, the ambition to build 1.5 million homes will remain aspirational, at best.
But what can be done now?
The government will consult on a 5-year rent settlement, with the intention to increase rents in line with the consumer price index measure of inflation plus 1%. While this will provide longer-term certainty on funding for housing associations and local authorities, and allow them to invest in new homes, what is needed is at least a 10-year rent settlement, which has been called for by industry bodies, like the National Housing Federation. National Housing Federation – Social housing renewal: first steps for the new government
The construction and housebuilder industry needs access to long term and affordable government loans, such as from the PWLB lending facility, which currently only provides loans to local authorities for capital projects.
Tying lending to the guaranteed rental uplift for affordable homes over an extended period creates a stable platform for both building and repayment of the debt. Were this lending facility extended to Housing Associations as well as councils, they could provide guaranteed sales of the affordable elements of market housebuilders’ projects, unlocking the private homes as well as the affordable.
This is how we could get Britain building again.
