Thought of the Week
Is the chancellor right to focus on housing to help drive wider economic growth?
February 27, 2025 4 Minute Read
The housing market has been subdued over the last couple of years, predominantly because of higher mortgage rates. Our recent consumer survey shows that mortgage payments increased for 60% of homeowners last year. Still, activity picked up in the second half of 2024 as mortgage rates reduced following the Bank of England base rate cuts, and we expect this recovery to be sustained as we progress through 2025. However, although housing market activity is recovering, the number of new homes being built is still at critically low levels. There were 221,000 net additional dwellings in 2023/24, a fall of 6% year-on-year according to MHCLG. But the Government has recognised this challenge and is targeting 1.5 million new homes to be built over the course of the next Parliament. One of the primary aims is to help support economic growth. The question is: will it?
Certainly, the evidence suggests that focusing on the property industry and kick starting house building will help boost the economy; property contributes around £1.7 billion to UK GDP annually. There are around 12 million people employed in the UK property sector. Of these, 834,000 work in the house building industry, and estimates suggest each new dwelling built supports up to 3.4 jobs. With the exception of 2021, wages in construction have been increasing steadily over the last 25 years, and have been notably strong recently; with the average annual earnings for full-time employees starting at £37,430 a year in 2024 in the UK and £47,455 a year in London. New house building generated £53.3 billion (+40% in 5 years) of economic output in 2023; 87% coming from the private sector.
The total invested in land for housing is thought to be £10.5 billion each year in England and Wales, and the construction industry generated over £2.7 billion of net capital expenditure in 2023 by acquiring physical assets. In total, across all real estate assets, £53 billion was invested across all real estate in the UK in 2024. Investing in property also leads to the development of infrastructure and commercial spaces, which helps support businesses and enhance economic activities. The Home Builders Federation estimates that £216 million has been invested in open space, youth, community, sport, and leisure facilities.
But the economic boost from property is more than just constructing and buying and selling buildings. UK households spend on average, £7,000 on furniture and decoration when moving home. For every 100,000 home sales, removals generate £72 million.
The property industry also relies on the financial sector to provide mortgage lending and financing. In 2024, there were 755,000 mortgage approvals in the UK. In the same year, 1.09 million residential and 123,860 non-residential properties were sold. Taxes also have an important contribution: in the housing sector, Stamp Duty generated more than £11.6 billion in 2023/24; corporation tax over £1.5 billion and council tax £38.5 billion.
The Government’s target of 1.5 million new houses over the next five years is ambitious but, if hit, would bring £330 billion in the economic activity, £57.5 billion in affordable housing, £42.5 billion on spending in local shops, £40 billion in tax receipts, £9.4 billion in funding for infrastructure, and £1.35 billion in spending for open spaces. Plus, it would support an additional 350,000 jobs. That said, and considering all these numbers, Rachel Reeves appears to be right in focusing on property to grow Britain. But will the Government be able to put its plan into practice?
Thought of the Week
Contacts
Related Service
Unlock the potential of your residential real estate with expert investment, financing, valuation, agency and design strategies.