House building tumbles to lowest level in three years in blow to homeownership dreams

House building has tumbled to its lowest level in three years in another blow to the homeownership dreams of millions of Brits, a closely watched survey out yesterday revealed.

According to S&P Global and the Chartered Institute of Procurement and Supply’s (CIPS) latest construction purchasing managers’ index (PMI), the rate of new houses being rolled out across the UK has slumped to its weakest pace since May 2020.

The pair’s house building index dropped to 42.7 points last month which, outside of the Covid-19 pandemic when the country’s property market was gummed up and construction projects were mothballed, was the lowest reading in just over 14 years.

Any reading below 50 points means house building is shrinking.

Slim housing supply will knock the chances of young Brits getting on to the property ladder for the first time.

While house prices have receded around four per cent from their record highs of last summer, they are still far above their pre-pandemic level, making it tougher for first time buyers to achieve their homeownership ambitions.

According to the Office for National Statistics, the average price of a house in the UK was  £285,000 in March, up from £231,000 in February 2020.

Labour MP and shadow housing secretary Lisa Nandy said: “As the housing crisis deepens, the dream of homeownership is taken away from yet more families and young people.”

“On the Conservatives’ watch, homeownership rates have plummeted, mortgage rates have soared and – after Rishi Sunak rolled over to his backbenchers – housebuilding is now falling off a cliff,” she added.

The Conservatives in the 2019 general election pledged to build 300,000 new homes per year by the middle of this decade, though late last year the government watered down that target to “advisory”.

House prices have been amplified by a combination of demand topping supply for years and ultra-low interest rates in the years after the 2008 financial crisis.

But, the return of sky high inflation – running at 8.7 per cent – has forced the Bank of England to lift borrowing costs twelve times in a row to 4.5 per cent and is expected by financial markets to take them to a peak of at least 5.25 per cent.

That has sent the mortgage market into a tizz, with lenders pulling products and jacking rates on available contracts, leaving prospective buyers struggling to source funding to finance purchases.

“Worries about the impact of higher interest rates and subdued market conditions continued to dampen housing activity,” the PMI survey noted.

Last month’s depressed house building figure “highlights the weakening demand for housing as people are still cautious given interest rates and the cost-of-living crisis,” Kelly Boorman, partner and national head of construction at consultancy RSM UK, said.

The overall construction PMI was nudged higher from April despite poor residential real estate activity, up to 51.6 from 51.1. 

The Department for Levelling Up, Housing and Communities has been contacted for comment.