As building rates increase, is there still a supply and demand issue in the UK?

The need to build more homes has been a national priority for decades. Successive governments have tried to increase the number of homes we build in the UK, but so far nobody has managed to end the housing shortage.

The current government has raised the national housing target to a new high of 375,000 completions per year – but are they achieving it? And would it be enough to eliminate the huge gap between supply and demand in the UK property market?

Most importantly, what would that mean for property owners and investors interested in UK property for sale?

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How many homes do we need in the UK?

Decades of lacklustre housebuilding numbers have left the UK in a tight spot. The Centre for Policy Studies (CPS) says we have a shortage of 6.5 million homes compared to our European neighbours.

In Britain, we have 446 homes per 1,000 people, the second-worst rate in Europe. This compares to 560 in France, 516 in Germany and a European average of 542.

The majority of that shortfall is because we haven’t built homes fast enough or invested in the property sector sufficiently. For example, France builds approximately 40% more homes each year than the UK, according to the CPS research.

Overall, we will need to build 565,000 homes per year by 2040 to close that gap. If we carry on at the current rate, we will not reach today’s European average until 2115.

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Are housebuilding rates increasing in the UK?

The government has challenged itself to build 1.5 million new homes by 2030. That would represent a huge increase on current building rates. In the last three years, the annual average has been just 230,000 new homes, according to Savills. That means that to meet their target, the government needs to up completion rates by at least 120,000 new homes a year.

Housing starts and completions fell sharply during COVID-19, according to the House of Commons Library. There was then a spike of activity at the beginning of 2023 when builders raced to start ahead of new construction legislation.

Rates then fell again in 2024, but the new government has successfully raised them this year. Starts on site are 9% higher than this time last year, and the general trend is positive. Homes England figures noted that completions also rose by 12% in the 2024/25 financial year.

There is a lot of work still to do, but on the whole, we are seeing modest increases in the UK housebuilding rate.

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Will housebuilding rates keep rising in the future?

The government has made changes that could continue to boost housebuilding over the next four years, including:

• Mandatory housebuilding targets for local councils
• Regulatory changes that make it easier to build on ‘green belt’ land
• Hundreds of millions of pounds invested in training construction workers
• Plans for future reforms and investment in affordable housing

Taken together, the Office for Budget Responsibility believes that these changes could result in 1.3 million new homes by the end of the decade. That would be the majority of the government’s target and a major achievement if it becomes reality.

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Will this close the housing gap and lower house prices?

However, even with those potentially increased housebuilding rates, the regulatory reforms and the additional funding will not be enough to close the housing gap. If we build 1.5 million new homes by 2030, that will still be over 1 million fewer than the target specified by the Centre for Policy Studies in its analysis.

For property owners, homebuyers and investors, that means the fundamental facts of the UK’s housing market will remain in place:

• Lack of supply in the market
• Overwhelming demand fuelled by population growth
• More competition means more capital appreciation
• Lack of homes to buy will lead to more rental competition
• Rents will keep going up

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Where to invest to earn the highest returns in 2025?

The lack of housing is especially relevant in the biggest city centre markets like Manchester and Liverpool, where there are nowhere near enough properties to meet demand. Construction levels also remain relatively low in these areas.

Likewise, markets in desirable smaller locations like Eastbourne are facing the same problem. A large population, significant visitor economy and low availability of housing make it an ideal place to invest in UK buy-to-let property.

Want to buy UK property? Get our latest UK property market insights, then contact the team to discover our latest opportunities to maximise returns in 2025.