UK construction growth has dropped to its lowest level in six months, with a significant slowdown in housebuilding casting doubt on Labour’s ambitious housing plans, a new poll suggests.

The S&P Global construction purchasing managers’ index (PMI) scored 53.3 in December, down from 55.2 in November.

While a PMI reading above 50 indicates industry growth, anything below suggests contraction.

According to the report, housebuilding activity had dropped for three consecutive months, with December’s decline being the sharpest since June 2024. Factors such as high borrowing costs, weak consumer confidence, and subdued demand have all been blamed for the slowdown.

This comes as Labour remain determined to build 1.5 million new homes in England over the next five years – a pledge that many commentators believe will be hard to meet.

Brendan Sharkey, real estate and construction specialist at MHA, a firm of accountants and advisers and the UK arm of Baker Tilly International, commented: “The fall in construction PMI is hardly surprising as the industry continues to benefit from the government’s investment in infrastructure but at the same time is hampered by still historically high interest rates and an uptick in employment costs.

“Activity in the commercial sector remains strong, but housing has dipped. Whether the housing market will see a reversal in fortunes this year remains to be seen, however the opportunity to develop is clearly there given the planning reforms included in the recent NPPF. Overall, the construction industry has been relatively resilient in 2024 compared to other industrial sectors. Demand for construction is very much on a domestic level, whereas manufacturing and other industrial sectors are reliant on the global economy.

“From what our clients are telling us, 2025 is expected to be better than last year; however, it’ll be a slow burn.  Infrastructure will do well given the government’s investment plans as will commercial as the UK is becoming an investment choice for many. Housing supply will be available but it’s whether demand will follow if interest rates remain stubbornly high.”

Meanwhile, the latest Housing Pipeline Report from the Home Builders Federation, containing data from Glenigan, shows a continued downward trend in planning approval figures for Q3 2024 in both the number of sites and units approved for development.

With just 2,260 sites approved in the months of July to September, this marks a 10% decline from the previous quarter and the lowest quarterly total recorded since the HBF reporting in 2006. The rolling annual total of 10,180 sites approved also represents a record low, further illustrating the significant challenges the UK housing sector faces in meeting growing demand.

While the number of units approved during Q3 increased by 2% to 57,356, this is still 40% below the peak. The rolling annual total of 240,661 units saw a modest 1% rise from Q2 2024 but remains 6% lower than the same period in 2023 This decline in planning approvals highlights that, to meet the Government’s target of 370,000 new homes annually, approvals need to increase by over 150%.

Regionally, the decline in planning approvals has been especially pronounced in the North East, Yorkshire & the Humber, and the West Midlands. Although regions like London saw slight increases, the numbers remain far below historic levels.

The regional disparities further complicate efforts to address the national housing crisis, with areas in greatest need of new homes facing the most significant barriers to development.

These figures highlight the urgent need for targeted interventions to address the decline in planning approvals. While recent government announcements, such as the updated NPPF have been encouraging, swift action is still required to streamline the planning process, tackle regional imbalances, and ensure the necessary infrastructure for new developments.

Government also needs to address the lack of available affordable mortgage lending that is suppressing the huge real demand for new homes and is particularly hampering first-time buyers and young people’s ability to get on to the housing ladder. This uncertainly in the market, allied to the lack of Registered Providers in a position to take on the affordable homes provided as part of the planning permission, is preventing house builders from investing in new sites and planning permissions and pressing the accelerator on housing supply, despite the positive planning interventions the Government has made.

The latest report data for Q3 2024 shows:

+ The number of sites achieving planning permission in Q3 2024 was 2,260, a 10% drop from the previous quarter and the lowest quarterly total since 2006.

+ The rolling annual total of sites approved is 10,180, marking another record low.

+ The number of units approved during Q3 2024 was 57,356 – a 2% increase from the previous quarter but still 40% below the peak.

+ The rolling annual total of units approved stands at 240,661, a 1% increase compared to Q2 2024 but 6% lower than the same period in 2023.

+ The number of units approved in the last 12 months still needs to increase by over 150% to meet the Government’s 370,000 annual housing target.

+ Regional declines include:

+ Looking regionally, some areas saw a greater drops in the number of units being approved. In the North East with a 61% decline in planning approvals Yorkshire & the Humber with a 49% decline and West Midlands with a 55% decline.

+ Regions such as London saw slight increases, but approvals are still far below historic levels, with 44,000 units approved in the last 12 months—just 66% of the peak levels.

+ Looking to the number of projects being granted approval, there was a decrease compared to the previous quarter across all the regions except the North East, which saw a minor increase of 3%. The sharpest declines were in the North West (-19%) and Yorkshire and the Humber (-18%).

Neil Jefferson, chief executive of the HBF said: “The continued decline in planning approvals is deeply concerning and underlines the scale of the challenge we face in addressing the country’s housing crisis.

“The recent efforts by the government to reform planning policy are very welcome, but the data makes it clear that much more needs to be done to reignite housing delivery. Planning approvals will need to increase by more than 150% to meet the Government’s target of 370,000 homes annually, which is a huge leap from the current figures.

“We are seeing significant regional variation, with some areas experiencing severe drops in approvals, while others, like London, are still well below previous levels. This discrepancy highlights the need for targeted interventions that not only speed up planning processes but also provide clear support for both developers and homebuyers.

“The lack of affordable housing is impacting communities across the country, and without a stable demand for new homes, the industry lacks the confidence to invest in building the homes that are desperately needed.

“Increasing housing will require going beyond planning reform and addressing broader issues such as financing for homebuyers and a lack of providers in the market to take on the affordable housing developers build.

“Continued intervention from the government will be crucial to ensuring we have a robust housing market that can deliver for the nation and tackle the housing crisis head-on.”

Following HBF’s latest Housing Pipeline Report revealing record low planning permissions, Craig Carson, MD at Barratt West London, said: “The government has inherited a difficult environment from its predecessors. It has a challenge on its hands to even begin to tackle London’s housing shortage, with a target of 80,000 new homes per year in the capital alone. This is clearly an ambitious target but demonstrates a shared vision between government and housebuilders alike that we absolutely must build more homes. Not only does the Government need to introduce measures that keep the homebuying and selling market moving, it needs to support housebuilders from the very beginning.

“The National Planning Policy Framework and new towns funding are two immediate positive introductions from the Government. Housebuilding is clearly central to the Government’s plans, with a recognition of both the social benefits and economic growth potential by increasing the country’s housing output. There has also been much discussion around the elusive grey-belt and how this could unlock swathes of land, alongside reforms to the London Plan next year.”

“In addition to the existing policies proposed by the government, I would like to see more investment to unlock brownfield sites – this is particularly pertinent in London and will help meet the housing targets set for the capital. A specific scheme (like shared equity) with a key focus on first time buyers would directly support them on getting on the property ladder, at a more affordable rate. This would reduce the competition for the currently limited housing stock.”

“The ever-growing skills gap is a ticking time bomb in the construction sector, and whilst we absolutely need more skilled tradespeople to help build the 1.5m homes planned by Labour, we will struggle to build anywhere near this number unless employment figures drastically increase within planning offices.

“It is positive that the government has announced funding for 300 additional planning roles, which are seldom part of the discussion, however, in practice this will barely scratch the surface of the true deficit. We also must consider the time it will take to train planning graduates. It takes around two years to train a graduate in housebuilding, and assuming aspiring planners follow the same pathway, this will not be an overnight fix. There is already a backlog of applications, and a drive to boost housing deliver will further exacerbate the problem.”

Simon Vernon-Harcourt, design and planning director at City & Country, commented: “In order to ‘rebuild’ Britain, the government must first start by losing the brakes on housebuilding. Local councils have until now lacked firm guidance and have allowed themselves to be controlled by NIMBYism for far too long. A strong economy relies on its infrastructure – housebuilding is the backbone of such an economy.

“However, stronger local targets require difficult decisions on the future of green belt land. There is an urgent need for investment in cleverly designed homes in rural locations, many of which face a housing shortage. Clearly there are limited brownfield sites to address this need.

“Now, Angela Rayner must clear the blockage in the planning system, and go well beyond the release of ‘Grey Belt’ land. She will need to urgently reassess and redraw the boundaries of green belt land if she hopes to meet the proposed increase in mandatory housing targets, as housing should be located where they create and expand sustainable communities rather than outdated green belt boundaries. Only by ensuring the adequate release of land will developers have the opportunity to create exceptionally designed homes in sustainable locations, so the government can ensure sustainable growth and long-term economic stability.”