Key Takeaways: UK Residential Construction Market (2024–2028)

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Economic & Market Conditions

✔ Short-term slowdown (2024) due to high interest rates, inflation, and cautious investor sentiment.
✔ Gradual recovery expected from 2025, with annual growth of ~2.5%–4% as interest rates ease and demand stabilizes.
✔ Housing affordability remains a challenge, with homeownership out of reach for many due to high prices and borrowing costs.

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Construction Industry Outlook

✔ Housing supply remains below demand, with annual new builds (~230k) falling short of the government’s 300k target.
✔ Regional growth expected in the North and Midlands, supported by infrastructure investments and urban regeneration projects.
✔ Build-to-rent and mixed-use developments increasing, driven by institutional investment and changing housing needs.

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Sector Trends & Innovations

✔ Sustainability is becoming a core industry requirement, with Future Homes Standard (2025) mandating low-carbon housing.
✔ Energy-efficient homes and retrofits gaining traction, with demand for heat pumps, solar panels, and smart energy systems rising.
✔ Modular and off-site construction expanding, helping to reduce costs, improve efficiency, and address labor shortages.
✔ Digitalization (BIM, AI, robotics) accelerating, improving project management, cost control, and construction speed.

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Investment & Policy Impact

✔ Government support is critical, with policies like the Affordable Homes Programme, First Homes scheme, and infrastructure funding shaping housing supply.
✔ Planning reforms expected post-2025, potentially unlocking stalled projects and accelerating approvals.
✔ Sustainability incentives increasing, including green mortgages, energy efficiency grants, and tax breaks for eco-friendly housing.

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Economic Background

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GDP Growth and Outlook

The UK economy is emerging from a period of sluggish growth. After hovering near zero in 2023, GDP is forecast to expand by about 1.1% in 2024, then accelerate to 2.0% in 2025 before moderating to around 1.5–1.8% annually through 2026–2028 (EFOs - Office for Budget Responsibility) (EFOs - Office for Budget Responsibility). This gradual improvement in economic growth should bolster household incomes and employment, supporting housing demand. By the mid-2020s, a healthier economy is expected to create a more favorable backdrop for homebuilding and real estate activity.

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Inflation and Interest Rates

UK inflation spiked to multi-decade highs in 2022 (over 10% year-on-year) amid global supply shocks, but is now on a downward trend toward the Bank of England’s 2% target. To combat inflation, the Bank sharply raised interest rates from near-zero to their highest levels since 2008. As of 2024, mortgage interest rates hovered around 5–6%, up from ~2% in 2021 (UK two-year mortgage rates hit 6% - Reuters). These higher borrowing costs have cooled housing market activity, reducing buyer affordability and price growth. House prices in fact declined in most regions between 2023 and 2024, a reversal from the previous years of rapid gains. Many homeowners coming off low fixed-rate mortgages face payment shocks, and developers have become cautious with new projects in the high-rate environment. However, with inflation easing, policymakers may begin lowering interest rates by 2025, which would improve mortgage affordability and potentially reinvigorate housing demand.

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Government Policy Environment

Government policies play a key role in the housing market’s trajectory. The UK has an ambitious (but consistently missed) target of building 300,000 homes per year, set to address the chronic housing shortage.

Actual delivery remains lower (only ~230,000 new homes were added in 2023, prompting renewed focus on policy measures to boost construction. The government’s Affordable Homes Programme 2021–2026 provides £12.2 billion – the largest affordable housing investment in a decade – to support construction of tens of thousands of affordable homes Infrastructure funding (e.g. £1.1 billion via the Housing Infrastructure Fund) is also being deployed to enable development in high-demand areas

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Additionally, planning rules are being examined: authorities in major cities now apply a “brownfield presumption” (favoring development on previously-used land) if housebuilding falls behind targets. Looking ahead, the outcome of the next general election could bring further shifts – for example, the opposition has signaled plans to overhaul the planning system and free up more land for housing, aiming to facilitate 1.5 million new homes by 2029. Overall, economic policy is balancing the need to tame inflation (which raised borrowing costs) with the push for growth, including stimulating construction and homeownership (through planning reforms, stamp duty adjustments, and buyer assistance schemes). How effectively these policies reduce barriers and incentivize development will significantly impact the housing market over 2024–2028.

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Construction Industry Outlook

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Projected Growth Trends

After a strong post-pandemic rebound, the construction sector faces a near-term dip before returning to growth. Industry forecasts suggest that 2024 will see a slight contraction in UK construction output (e.g. around –0.7% to –2% in real terms) as high inflation and interest rates take their toll. Notably, new residential building has been the most negatively impacted segment in this slowdown). However, the outlook brightens from 2025 onward.

As macroeconomic pressures ease, construction output is expected to recover by ~2.9% in 2025, with the housing sector rebounding ~7% in real terms. Growth momentum is then projected to continue through 2028 at an average 4%+ annual rate in nominal terms.

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By 2028, the UK construction industry could reach an output of about £199 billion, up from £169 billion in 2024. This positive outlook is underpinned by an anticipated pickup in housebuilding (after the 2023–24 slump) alongside sustained activity in infrastructure and renovation work.

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Key Growth Drivers

Several factors are set to drive construction growth over the next five years:

• Easing of Economic Headwinds: Lower inflation and gradually falling interest rates by 2025 will improve developers’ confidence and households’ buying power. This macro relief should unlock delayed projects and increase demand for new homes.

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• Government Housing Targets & Support: The political commitment to boosting housing supply remains strong. Renewed annual housing targets and government funding for affordable homes and infrastructure are expected to spur building activity. In the lead-up to 2025 elections, additional incentives or regulatory easing (such as accelerated planning approvals or developer incentives) may emerge to stimulate housebuilding.

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• Repair and Improvement Demand: Apart from new builds, the repair, maintenance and improvement (RMI) segment is forecast to stay robust. Homeowners, faced with high moving costs and energy bills, are investing in upgrades (energy-efficient retrofits, extensions, etc.). Since 2021, RMI spending has outperformed new construction and is expected to continue growing in 2024 and beyond (UK Construction sector set to overcome 2024 headwinds and return to growth), providing a steady underpinning to the industry.

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• Infrastructure and Sustainability Projects: Large public infrastructure programs (transport, utilities, clean energy) contribute indirectly by improving connectivity and opening new sites for housing. The government has a £700+ billion infrastructure pipeline for the next decade, and a shift toward sustainable construction and net-zero goals is creating new opportunities (such as green building retrofits, heat pump installations, etc.). These initiatives not only generate construction work but also encourage the adoption of modern methods and materials, boosting productivity in the sector.

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Constraints and Challenges

Despite optimistic forecasts, the industry must navigate significant headwinds that could cap growth if unaddressed:

• Supply Chain Disruptions & Material Costs: The construction supply chain has been strained since the pandemic and Brexit, with shortages and delays in key materials like timber, steel, cement, and fittings. Global disruptions and higher demand led to a 35% surge in building material prices since 2020 (Building Material Prices: 0.2% Rise in Nov 2024). In 2022, record material inflation squeezed contractors’ margins and slowed projects. There has been some relief in late 2023–2024 – overall materials costs actually fell ~0.3% in the 12 months to Nov 2024 – but prices remain elevated and volatile. Any new shocks (currency fluctuations, trade barriers, geopolitical events) could reignite cost inflation. Contractors are responding by diversifying suppliers and using local sources to mitigate delays, yet supply chain resilience remains a concern.

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• ‍Labor Shortages and Skills Gaps: A chronic shortage of skilled construction labor in the UK is threatening the industry’s capacity. The workforce was strained by Brexit (which reduced the inflow of EU workers) and COVID, leaving job vacancies high. Compounding this, the existing construction workforce is ageing – an estimated 500,000 workers (25% of the workforce) are expected to retire in the next 10–15 years to maintain workforce levels . This labor crunch is driving up wages and project costs and could slow the rate at which new homes can be built. The government has launched skills initiatives (e.g. 32 “skills hubs” to train 5,000 additional construction apprentices annually by 2028 and relaxed visa rules for certain trades. However, homebuilders report the immigration sponsorship system remains cumbersome, and many firms still struggle to fill roles like bricklayers, electricians, and plumbers . Without enough workers, even well-funded housing plans may face execution delays.

• Planning and Regulatory Hurdles: The UK’s complex planning process is frequently cited as a bottleneck for development. Lengthy approval times, local opposition to new housing (the “NIMBYism” effect), and constraints on land availability (especially protections on greenbelt land) all limit construction speed. Investors and developers are seeking clarity and reform on these issues – including unlocking planning constraints and speeding up permissions – to enable higher build rates. Some reforms are in progress (for example, planned updates to the National Planning Policy Framework), but meaningful change can be slow and politically sensitive.

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• Cost Pressures and Profitability: Even as demand for housing is strong, builders are navigating slimmer margins due to cost inflation in materials and labor. High interest rates have also increased development finance costs, making projects more expensive to fund. Smaller SME builders, in particular, have been squeezed, leading to some exiting the market since 2020. If inflation in construction costs doesn’t moderate or if house prices were to fall significantly, development could become financially unviable in certain areas. This tension is evident in 2024, where private housebuilding output is projected to drop ~7% as developers pull back in the face of high mortgage rates and build costs Continued government support (through grants, affordable housing guarantees, or low-cost financing) might be needed to keep development on track in lower-margin segments.

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• Market Uncertainty: The overall market sentiment remains cautious. Risks such as potential economic recession, changes in government policy (especially with an election on the horizon), or shifts in buyer behavior add uncertainty. Many volume housebuilders are “wait-and-see”, limiting housing starts until sure of market conditions (United Kingdom Construction Industry Report 2024-2028: Mixed Outlook with Growth Driven by Government Investment in Infrastructure and a Shift Towards Sustainability - ResearchAndMarkets.com | Business Wire). Investor caution is also evident in commercial real estate and build-to-rent, as higher yields are demanded in a high-rate environment. While the medium-term outlook is positive, short-term jitters could result in a slower recovery for construction than forecast if any new headwinds emerge.

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In summary, the construction industry is poised for growth through 2028, but that growth is contingent on resolving supply chain issues and training new workers. Firms that innovate – whether by adopting off-site construction, securing stable material supplies, or improving productivity – will be best placed to capitalize on the upswing. Industry stakeholders and policymakers alike recognize that addressing these constraints is essential to meet the UK’s housing needs in the coming years (UK Construction sector set to overcome 2024 headwinds and return to growth).

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Sector Trends

Demand and Supply Dynamics

The fundamental demand-supply imbalance in UK housing is expected to persist over the next five years. Population growth, household formation, and years of underbuilding have created a structural housing shortage – housing demand outstrips supply by a wide margin. Annual new supply (c.200k–240k homes) continues to fall short of the estimated ~300k homes needed per year to keep up (United Kingdom Construction Industry Report 2024-2028: Mixed Outlook with Growth Driven by Government Investment in Infrastructure and a Shift Towards Sustainability - ResearchAndMarkets.com | Business Wire). By 2024, England’s housing stock deficit (relative to population needs) has manifested in record-high house prices and rents. Demand for homes is especially concentrated in areas with strong job markets (London and the South East, but also regional hubs like Manchester), putting pressure on those local markets.

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On the demand side, demographic trends are supportive: Millennials are moving into prime homebuying age, and immigration levels (while politically debated) contribute to household growth. Post-pandemic lifestyle shifts also influence demand – for example, the rise of remote work initially led to a “race for space” with many families seeking larger homes in suburban or rural areas. This boosted demand for single-family houses with gardens outside city centers. By 2024, some of that trend has normalized (a degree of re-urbanization is occurring as offices reopen) (The rural housing market after the COVID-19 pandemic), yet the preference for more space and flexibility remains a lasting consumer consideration. Demand for rental accommodation is also robust, as high buying costs push more people to rent longer. The growing build-to-rent sector (professionally managed rental housing) is a response to this, drawing significant investment (e.g. £800 million invested in Q3 2024 alone into UK build-to-rent projects (Savills USA | UK Build to Rent Market Update – Q3 2024)). Over 2024–2028, if interest rates stay relatively high, we may see even greater rental demand and the emergence of “Generation Rent” as a permanent cohort – which in turn encourages developers to construct more rental units and multifamily housing.

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On the supply side, the ability to ramp up homebuilding is constrained (as discussed, by labor, land, and planning factors). Large developers control much of the land pipeline and tend to build out at a pace that maintains housing prices. However, government pressure to increase output may incent them to accelerate deliveries, and new players (modular housing firms, housing associations, community builders) could add to supply if given the opportunity. The introduction of modern construction methods (see below) might also help supply respond faster in the coming years. Overall, housing supply is expected to rise gradually but is unlikely to suddenly meet the annual target; thus the supply gap will remain an issue through 2028, keeping housing a seller’s market in many regions.

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Despite numerous projects like this, the UK’s rate of new building is still below what experts say is required to fully ease the housing shortage. The enduring imbalance suggests that house prices and rents will stay elevated relative to incomes, barring an economic downturn. Indeed, even with a recent cooling, the UK’s house price-to-income ratio remains near historic highs.

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Housing Affordability

Housing affordability will continue to be a central concern. Years of rapid property price growth (pre-2022) coupled with modest wage increases have stretched affordability to challenging levels, especially for first-time buyers. As of late 2024, the average UK house price is around 6.5 times the average annual salary, down slightly from a peak of ~7.2 in 2022 (Halifax affordability review - Lloyds Banking Group plc). This modest improvement came as wage growth (5% YoY) outpaced house price growth (3.8%) in 2024 (Halifax affordability review - Lloyds Banking Group plc), and as prices dipped in some areas. Even so, a ratio of 6.5 is well above historical norms and above the 3-4× multiple that lenders traditionally consider affordable. In practical terms, many middle-income households struggle to save the large deposits now required, and mortgage payments at 6% interest consume a hefty share of income. One analysis warned that only the top 10% of earners can comfortably afford the average home in England, with an average household needing about 8.6 times its income to buy a typical property (Cost of buying average home in England now unaffordable, warns ...).

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The outlook for affordability is mixed. On one hand, if house price growth remains subdued (or if prices stagnate) while incomes gradually rise, there could be a slow improvement in affordability metrics. The government has also raised the stamp duty threshold for first-time buyers and introduced schemes like First Homes (discounted new homes for local first-timers) to help. On the other hand, interest rates are projected to settle higher than the ultra-low levels of the 2010s – meaning mortgage costs will stay relatively high. The average mortgage rate in 2025 is expected to be 4–5%, rather than returning to the 2% era (What can we expect from the UK housing market in 2025?). Higher borrowing costs offset any benefit of stagnant prices. Thus, without significant increases in housing supply or subsidies, homeownership will likely remain out of reach for many aspiring buyers in the near term. We may see a greater reliance on shared ownership, family assistance (the “Bank of Mum and Dad”), and government equity loans to facilitate purchases. Additionally, if rental demand stays high, rental affordability (rent-to-income ratios) could also worsen, affecting overall housing affordability and cost of living for non-owners.

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Regional Disparities

The UK housing market is highly segmented by region, a trend set to continue through 2028. There are stark regional disparities in house prices and affordability. In broad terms, London and the South East have the most expensive and least affordable housing, while regions like the North East and parts of the North West are more affordable (though often with different challenges such as lower wage levels). For example, in 2024 the North East was the most affordable region with an average house price ~4.4× earnings, whereas parts of the South East had ratios in the double digits (Halifax affordability review - Lloyds Banking Group plc). An extreme case is Elmbridge in Surrey (a commuter belt area) where house prices average 17.5× local earnings (Halifax affordability review - Lloyds Banking Group plc). By contrast, cities like Hull or Liverpool have ratios closer to ~5× or less, indicating substantially more attainable markets (Halifax affordability review - Lloyds Banking Group plc).

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These differences are underpinned by varying demand drivers – high-paying jobs and limited land in the South boost prices, while some northern areas have excess housing relative to current demand. Over 2024–2028, government “levelling up” efforts aim to stimulate economic growth in regions outside London, which could gradually increase housing demand (and prices) in those areas. We might see relatively stronger housebuilding and price growth in regional cities and towns where affordability is better and land is available, compared to the already-constrained Southeast. Indeed, during the 2023–24 market softening, house prices fell in most areas but a minority of cities (largely in more affordable regions) still saw modest price gains (City Monitor | Centre for Cities    ), highlighting that some regions have more underlying demand resilience.

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Rental markets also vary regionally – London rents are notoriously high, and as people priced out of buying remain in the rental sector, pressure in those markets remains intense. Meanwhile, some northern cities with ample rental supply have more moderate rent levels. Another aspect of regional disparity is the differing policy approaches: for instance, devolved governments in Scotland and Wales have their own affordable housing programs and planning rules, which can lead to different outcomes in supply. In sum, the UK housing market will not move uniformly; regional economies, local policies, and starting affordability positions will create a mosaic of conditions. Overall inequality in housing wealth may widen if the South continues to see much higher absolute prices, though percentage growth could be stronger in relatively cheaper regions as they play catch-up.

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Evolving Consumer Preferences

Consumer preferences in housing are gradually evolving, influenced by technology, demographics, and environmental awareness. One clear trend is a growing preference (and eventually requirement) for energy-efficient, sustainable homes. With utility costs high and climate concerns mounting, buyers and renters are placing more value on features like good insulation, double/triple glazing, solar panels, and efficient heating systems. New developments tout energy performance as a selling point, and homes with higher EPC (Energy Performance Certificate) ratings could command premiums or rent more quickly. This trend will strengthen towards 2028, especially as government regulations push toward net-zero housing (discussed in the next section). Consumers are also more informed now about the long-term cost savings of green homes, so demand for retrofitting existing homes with heat pumps, solar PV, and better insulation is rising.

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Another shift is in the type of housing and location people desire, partly influenced by the pandemic’s lasting effects. Space and quality of life are priorities – many buyers seek homes that can accommodate home working (a spare room or study space) and value access to green space. This has sustained interest in suburban houses, market towns, and commuter belt locations. That said, city living is far from dead; younger professionals still gravitate to urban centers for jobs and amenities, but they increasingly expect high-quality rental options (hence the boom in build-to-rent apartments offering gyms, co-working lounges, etc.). We may also see changing attitudes toward property ownership itself among younger generations: with affordability tough, some opt for lifelong renting or alternative tenures, and developers are responding with new models like co-living (private room + shared facilities arrangements) which can be more affordable in cities.

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Technological integration is another preference trend. Smart home features – from app-controlled heating and security to EV charging points – are becoming mainstream expectations in new builds. Buyers in 2025 and beyond will more often ask for homes that are “future proof,” meaning wired for high-speed internet, possibly featuring smart energy management systems, and adaptable layouts. Health and wellness considerations post-Covid are also notable: better ventilation systems, designs that maximize natural light, and provision of balconies or gardens in multifamily developments are increasingly valued.

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Lastly, diversity of housing needs is expanding. The population is aging, so there is rising demand for age-friendly housing (single-story homes, retirement communities) as well as multigenerational living setups. We might see more flexible home designs that can accommodate an elderly parent or boomerang adult children. In parallel, urban areas must cater to young single professionals and students, fueling growth in studios and purpose-built student accommodation. Developers that understand and target these evolving segments – whether eco-conscious families or downsizing retirees – will shape product offerings accordingly. Over the next five years, the residential sector will need to become more customer-centric, delivering homes that align with lifestyle changes and the higher expectations consumers have for comfort, sustainability, and technology integration.

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Renewable Energy Sector Insights

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Sustainability and Green Construction Materials

Sustainability is no longer optional in the residential construction sector – it is a defining theme for the coming years. The drive toward net-zero carbon emissions by 2050 means that both new construction and existing housing stock must dramatically reduce their environmental footprint. Currently, residential housing accounts for about 16% of the UK’s total carbon emissions (Future Homes 2025 – A New Standard for Energy Efficient Homes - The Carbon Literacy Project) (mostly from heating and powering homes). The construction process itself also generates emissions (through materials like cement and steel). To tackle this, the industry is embracing green construction materials and methods. We expect increased use of low-carbon and recycled materials: for example, timber frames and cross-laminated timber (CLT) in place of steel beams, green concrete mixes with lower clinker content, recycled steel and brick, and insulation made from sustainable or recycled inputs. Such materials can significantly cut embodied carbon in new buildings. There is also growing interest in modular/off-site construction (covered later) which can reduce waste and allow precision engineering for energy efficiency.

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Developers are increasingly pursuing certifications like BREEAM or the Home Quality Mark for sustainability, which encourages everything from biodiversity on development sites to responsible sourcing of materials. Building designs are incorporating passive solar principles, natural ventilation, and other features to minimize energy needs. Construction waste reduction is another focus – more contractors are diverting waste from landfills, reusing off-cuts, and implementing circular economy principles at building sites. By 2028, it’s likely that tenders for housing projects will routinely require a carbon management plan, and large developers have pledged to reach net-zero operations well before 2050, influencing their supply chains. In summary, “green building” considerations are permeating every stage of residential construction, from design and materials to site practices and supply logistics.

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Energy-Efficient Homes and Net-Zero Targets

Improving the energy efficiency of homes is a cornerstone of the UK’s net-zero strategy. All new homes from 2025 onward will be built to the Future Homes Standard (FHS), which mandates they produce 75–80% lower carbon emissions than those built under current regulations. In practice, this means new houses will be “zero carbon ready”: high levels of insulation, triple-glazed windows, and crucially, no gas boilers. Low-carbon heating systems such as air-source or ground-source heat pumps, heat recovery ventilation, and solar thermal panels will become standard in new builds. The FHS essentially future-proofs homes so that as the electricity grid decarbonizes, these homes can become fully zero-carbon in use. There is some critique that the FHS could go further (e.g. by requiring on-site renewables like solar PV), but it is a significant leap forward in building standards. By 2028, thousands of FHS-compliant homes will be coming to market, offering greatly reduced energy bills for occupants compared to older housing.

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For existing homes, which constitute the majority of housing stock, energy retrofits are a massive undertaking. The government has introduced programs to incentivize upgrades – one current initiative is the Great British Insulation Scheme (launched 2023), a £1 billion effort to provide free or subsidized insulation (loft and cavity wall) to around 300,000 homes by 2026 (Summary of the Great British Insulation Scheme: June 2024 - GOV.UK). There are also grants for installing heat pumps (through the Boiler Upgrade Scheme) and zero-VAT on energy-saving materials like insulation and solar panels until 2027, to encourage homeowners to invest. Despite these steps, the retrofit rate needs to accelerate dramatically to meet climate targets. We anticipate more aggressive policies ahead: for example, minimum energy efficiency standards for all homes could be tightened. (It has been proposed that by 2028, all rental properties must have an EPC rating of C or above, which would force upgrades in the private rental sector.)

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Consumers are increasingly interested in homes that are “cheap to heat.” Especially after the energy price spikes of recent years, efficient homes with solar panels or battery storage are commanding a premium. Net-zero energy homes – which generate as much energy as they consume annually – are a niche but growing segment. Pilot projects of entire net-zero neighborhoods (with solar roofs, community heat pumps, and home batteries linked to smart grids) are underway to demonstrate what the future of housing could look like. Over the next five years, these concepts may start to scale up. In all, by 2028 a typical new home will be far greener and more energy independent than one built a decade prior, and many older homes will have seen at least some improvements (such as better insulation or boiler replacements). Progress toward net-zero housing is steady, though there is a long way to go – the Climate Change Committee continues to urge faster action, like requiring all new homes to be net-zero (not just “ready”) immediately and significantly expanding retrofit programs (Future Homes 2025 – A New Standard for Energy Efficient Homes - The Carbon Literacy Project).

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Government Incentives and Policy for Net-Zero Housing

To support the shift to sustainable housing, the government is employing a mix of carrots and sticks. On the incentive side, apart from the grants and VAT breaks mentioned, there are funding streams like the Social Housing Decarbonisation Fund (aimed at upgrading council and housing association properties) and green mortgages (banks offering better rates for energy-efficient homes). There have been calls for creative measures such as stamp duty rebates for energy-efficient homes – effectively lowering transaction tax if a home meets certain EPC levels (UK Finance calls for stamp duty reforms and green homes agency in ...). While not implemented yet, such ideas may gain traction to encourage buyers and sellers to invest in upgrades. Another concept floated is linking council tax or stamp duty to energy performance (penalizing inefficient homes and rewarding efficient ones) (ENERGY SAVING STAMP DUTY INCENTIVE (ESSD)). By 2028, we might see more of these innovative incentives if the current schemes don’t yield the necessary improvements in insulation and heating systems.

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On the regulatory side, building regulations (Part L in England) are being tightened in stages. The 2021 uplift to Building Regs already required new homes to produce 31% lower emissions than the previous standard, as a stepping stone to the 2025 Future Homes Standard (Future Homes 2025 – A New Standard for Energy Efficient Homes - The Carbon Literacy Project). Further ahead, there is discussion of introducing embodied carbon limits for construction materials and requiring disclosure of a building’s whole-life carbon – policies already seen in some European countries – which would push builders to use greener materials. Planning policy is also increasingly factoring in sustainability: local plans may require a certain percentage of new homes to incorporate renewable energy or follow a net-zero design, and some forward-looking cities have mandated all new developments be net-zero compatible.

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Importantly, the government’s overarching net-zero commitment influences housing indirectly too. For example, the phase-out of new petrol/diesel cars by 2030 means new homes now often come with electric vehicle charging points installed, and planning rules were updated to make EV charger provision mandatory in new construction. Similarly, efforts to decarbonize the power grid (more wind and solar farms) make electric heating in homes cleaner over time. By the late 2020s, there will also likely be a clearer plan for phasing out gas for home heating entirely – current ambition is to end gas boiler sales by the 2030s. Homebuilders thus face a horizon where all-electric, super-efficient homes are the norm.

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In summary, sustainability is interwoven with the residential sector’s future. Homes built or renovated in the 2024–2028 period will be markedly greener due to these policies and incentives. This not only helps the UK inch toward its climate goals but also transforms the living experience – houses will be warmer, cheaper to run, and have a smaller environmental footprint. The challenge remains scaling up fast enough: policy support will need to intensify to retrofit millions of older homes and ensure that by 2028 the UK is well on track in its net-zero housing journey.

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Additional Considerations

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Policy Interventions and Reforms

Beyond the broad economic and housing-specific policies already discussed, a number of specific policy interventions are on the table that could shape the sector’s evolution:

• Planning System Reform: The government recognizes that the planning process needs modernization to boost housing supply. Proposals include moving towards a more zonal system (identifying “growth” zones with pre-approved development in principle), digitizing and streamlining application processes, and enforcing local housing targets. While a 2020 planning reform white paper encountered resistance and was watered down, the debate continues. There is now talk of revisiting planning reform after the election, potentially to empower councils to approve developments faster and make it harder for minor local objections to block projects. The aim is to reduce uncertainty and delay for developers. If implemented, such reforms could accelerate the pace of construction, especially in areas with chronic undersupply. In the meantime, smaller tweaks like relaxing rules on building upward extensions and converting commercial buildings to residential (Permitted Development rights) have been used to incrementally add housing. The success of policy here will directly impact whether the lofty housing targets can be met – streamlined planning could unlock a wave of new development, whereas a failure to reform means continuing status quo of lengthy, costly approval timelines.

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• Affordable Housing and Homeownership Schemes: Ensuring not just the quantity but the affordability of housing is a key policy focus. The Affordable Homes Programme (mentioned earlier) is funding affordable rent and shared ownership units, but the scale still meets only a fraction of need. We expect ongoing or expanded programs such as Help to Buy successor schemes or new equity loan programs to assist first-time buyers with deposits (Help to Buy, which provided government loans for new-build purchases, ended in 2023, leaving a gap). One new scheme is First Homes, which offers a 30% discount on certain new homes for local first-time buyers and key workers – by 2025 more First Homes plots should be coming through. There is also attention on the private rental sector: proposals like rent controls are being debated in some cities (London’s mayor has advocated for the power to freeze rents), and a Renters’ Reform Bill is in progress to improve tenant rights (abolishing no-fault evictions, etc.). While rent caps are controversial and not national policy, any significant changes in rental regulation could affect landlord investment and by extension new build-to-rent development. Another facet is social housing – councils and housing associations are being encouraged and financed to build more genuinely affordable homes, which could revive an area of construction that has been subdued for decades. Policy interventions here are geared toward making sure new supply isn’t just luxury homes or investor-focused units, but includes a mix of housing that is accessible to lower-income households.

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• Investment and Finance Trends: The residential sector is also influenced by where investment is flowing. In recent years there’s been a rise in institutional investment in residential assets – notably in build-to-rent, but also in later living (retirement communities) and student housing. This trend is expected to continue, with pension funds, insurers, and global investors allocating more capital to UK housing as a long-term stable return asset. In 2024, even amid higher interest rates, investment in build-to-rent was strong (Q3 2024 saw the second-highest Q3 on record for build-to-rent investment) (Savills USA | UK Build to Rent Market Update – Q3 2024). Over 2024–2028, institutions may expand into single-family rental homes and suburban rental developments, not just city-center flats (UK Housing Fund - UK - EN - Institutional). This injection of capital is positive for construction, as it underwrites new development. However, it also means more of the housing stock will be in the hands of large landlords, raising political questions about ownership and affordability.

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• Foreign investment is another piece – historically, overseas buyers (individual and corporate) have been active in London’s new-build market. Tax changes (like higher stamp duty for overseas buyers) and global economic shifts might temper this, but a weaker pound could also make UK property attractive. The luxury segment in London may thus see cycles of international demand that influence high-end construction. Domestically, the role of major volume housebuilders will remain crucial. They have significant financial capacity and land banks, and their investment decisions (whether to accelerate build-out or hold back) will shape supply. If market conditions improve post-2024, we could see these firms increasing housing starts, especially if prompted by government incentives or the threat of penalties for land hoarding.

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• “Levelling Up” and Regional Investment: Government’s levelling up agenda involves investment in regions outside the South East, which includes funding for urban regeneration, transport links, and potentially new towns or garden communities. For example, initiatives to revive city centers in the North or Midlands (converting empty retail space to residential, etc.) will create construction opportunities. There’s also discussion of relocating more government departments outside London, which could spur housing demand and development in those areas. Over the next five years, we may see a few flagship projects – such as a major brownfield redevelopment into housing in a northern city – backed by central government funding as part of levelling up. These would serve both as economic stimulus and as a way to demonstrate commitment to regional housing growth.

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In essence, the policy environment is dynamic, with potential reforms on multiple fronts. If the various interventions align (planning easing, funding support, regulatory tweaks), they could collectively create a more enabling environment for the residential construction sector to thrive. Stakeholders will be watching policy signals closely in 2024–25, as these will set the direction for the latter half of the decade.

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Digital Construction Technologies (Modular and More)

Innovation in construction technology – often dubbed “Construction 4.0” – is gradually changing how homes are built in the UK. One of the most prominent trends is the rise of modular and off-site construction. Instead of traditional brick-by-brick building on site, modular construction involves manufacturing whole rooms or panels in factory conditions and then assembling them on site. This can significantly speed up build times, improve quality consistency, and reduce on-site waste. The UK government has been supportive of modern methods of construction (MMC), with portions of the Affordable Homes Programme funding allocated to projects using MMC. A trade body, Make UK Modular, estimates that the industry will have capacity to produce 20,000 modular homes per year by 2025, which would account for about one-fifth of the country’s housing shortfall at current rates (Momentum growing for modular housing - PropertyWire). Several companies have invested in modular housing factories – for example, Legal & General set up a modular housing division, and newer firms like TopHat have delivered modular homes in volume. By 2028, modular techniques could be much more mainstream, particularly for affordable and social housing where speed is needed, and for repeatable designs (like apartment blocks or student housing).

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However, modular construction in the UK is still overcoming challenges such as higher upfront costs, financing hurdles, and ensuring traditional mortgage lenders and insurers are comfortable with factory-built homes. As the technology matures and more case studies prove successful (with developments completed in a fraction of normal time), we expect wider adoption. The productivity benefits of off-site construction also help alleviate labor shortages – a factory setting can automate certain tasks and require fewer total workers per home built. This is a compelling advantage if skilled site labor remains scarce.

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Beyond modular, digital technologies are transforming construction processes. Building Information Modeling (BIM) is now standard on large projects and increasingly on housing developments, allowing for detailed 3D models that integrate architectural, structural, and services information. BIM helps reduce errors and changes during construction, saving time and cost. Over the next few years, we’ll see even more integration of BIM with project management and procurement – for instance, linking BIM to automated material ordering or to off-site component fabrication (a concept known as DfMA, design for manufacture and assembly).

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Drones and 3D scanning are being used for site surveys and progress monitoring, improving accuracy in land measurements and enabling remote inspection of construction progress. Robotics and AI are also entering the scene: there are pilot projects with robotic bricklayers and AI-assisted site management (AI can optimize scheduling or detect safety issues by analyzing site photos). By 2028, it’s feasible that certain repetitive tasks (like bricklaying for long runs of wall, or drywall installation) might be partially automated on larger sites, augmenting the human workforce.

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Another emerging technology is 3D printing in construction. While printing entire homes is still experimental, there have been demonstrations of 3D-printed concrete homes and components in Europe. In the UK context, 3D printing might first be used for custom components or formwork rather than whole houses, but it’s an area to watch for its potential to speed up bespoke construction.

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Digital tech also extends to planning and sales: virtual reality (VR) and augmented reality are being used to market off-plan homes and to allow buyers to walkthrough virtual models. Some developers allow customisation through digital platforms, where a buyer can select finishes or layouts online which then feed into the construction plan.

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All told, the construction sector by 2028 will likely be more efficient and tech-enabled. Modern construction methods like modular building, coupled with digital project management and perhaps some automation, could help address the twin issues of speed and labor dependence. If productivity in construction improves, that will enable the industry to scale up output without a proportional increase in workforce – crucial for meeting housing needs. The government’s construction strategy emphasizes these innovations, and early adopters in the industry are already seeing benefits. While housebuilding has historically been slow to change, the pressures it faces now make a strong case for embracing technology. Homebuilding in 2024–2028 will thus be a blend of traditional craft and cutting-edge techniques, as the sector transitions into a new era.

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Investment Trends in Housing Development

Trends in investment will influence what types of residential projects get built and who finances them. One notable trend is the growing role of institutional investors in housing development. As mentioned, build-to-rent (BtR) is attracting major investments – over £800 million was invested in UK BtR in just Q3 2024 (Savills USA | UK Build to Rent Market Update – Q3 2024), and annual investment volumes in the billions are becoming common. Institutions like pension funds and insurance companies favor BtR because it provides steady long-term rental income. We expect this to continue, and even expand into new areas: for example, single-family rental communities (entire estates of houses built for rent) are an emerging asset class. There is also interest in affordable housing as an investment with social impact; some funds are partnering with housing associations to fund new affordable homes, blending public and private capital.

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Alongside rental housing, investors are eyeing urban regeneration projects that mix residential with retail/offices (“mixed-use” schemes). City centers post-Covid have opportunities for repurposing space – private equity and real estate funds may finance conversions of offices to apartments or the creation of new urban neighborhoods on former industrial land. The government’s designation of Investment Zones (with tax incentives in certain areas) could catalyze some of these projects by making them more financially attractive.

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Another trend is the focus on sustainable and ESG (Environmental, Social, Governance) investing. There is a surge in green bonds and sustainability-linked loans in real estate. Developers who can demonstrate strong environmental credentials (e.g. building net-zero energy homes or using sustainable methods) might secure cheaper financing or attract ESG-focused investors. By 2028, it’s conceivable that a significant portion of new housing finance will come with green strings attached, effectively pushing developers toward higher sustainability to access capital. Likewise, some investors are now assessing climate risk – meaning they will consider a housing project’s exposure to flooding or overheating in a warmer climate before investing. This might shift investment towards areas and designs that are more climate-resilient.

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In terms of home financing, the mortgage market for individual buyers is undergoing changes too. Interest rates are higher, but lenders are competing through innovative products (longer fixed-rate terms, green mortgages with lower rates for efficient homes, joint borrower schemes to help affordability, etc.). The availability and cost of mortgages directly affect housing demand. If lenders tighten criteria due to economic conditions, fewer people can buy and the new-build developers might pivot to rental or shared ownership models. Conversely, if new models like 40-year mortgages or intergenerational mortgages become mainstream, they could prop up buying power even in a high-price environment.

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Finally, the role of government and public investment remains significant. The planning gain mechanism (Section 106 agreements/CIL) is being reconsidered – there’s a proposal for an Infrastructure Levy that would take a fixed proportion of a development’s value for local infrastructure and affordable housing. How this is implemented will affect project viability and local investment in amenities alongside housing. Public-private partnerships could also emerge for large-scale developments (like new garden villages), sharing risk and reward between developers and the state.

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Overall, the investment landscape in UK residential construction is becoming more diverse. Traditional housebuilders building for sale are now complemented by institutional build-to-rent developers, impact investors in affordable housing, and tech-oriented construction startups attracting venture capital. This diversification can bring more resilience and innovation to the industry. Provided the economic outlook stays reasonably stable, there is substantial capital eager to be deployed into UK housing, given the strong underlying demand. The next five years will likely see record levels of investment in certain subsectors (rental housing, sustainable retrofits, etc.), reshaping not just how many homes are built, but what kind of homes and for whom.

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Conclusion

The UK residential construction sector is at a pivotal moment, shaped by economic fluctuations, shifting consumer demands, and the urgent need for sustainability. The industry is expected to experience short-term challenges in 2024, including high interest rates, supply chain disruptions, and labor shortages, leading to a temporary slowdown in new homebuilding. However, the mid-to-long-term outlook (2025–2028) is more optimistic, with projected annual growth of ~2.5%–4% driven by easing economic pressures, government housing initiatives, and increasing private investment.

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Housing supply remains constrained, continuing the trend of underbuilding relative to demand, particularly in high-growth regions such as London and the Southeast. However, regional markets in the North and Midlands are expected to see increased investment, supported by government-backed infrastructure projects and urban regeneration efforts. The affordability crisis is likely to persist, as high house prices and mortgage rates make homeownership difficult for many, reinforcing demand for build-to-rent, shared ownership, and alternative housing models.

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Sustainability is becoming a non-negotiable aspect of residential development. The Future Homes Standard (2025) will make low-carbon, energy-efficient homes the norm, while retrofitting existing housing stock will be a key priority. Investments in heat pumps, solar energy, and sustainable construction materials are set to increase as both regulatory pressures and consumer expectations push toward net-zero-ready housing.

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Despite ongoing challenges, the UK residential construction sector is evolving toward greater efficiency, sustainability, and resilience. Firms that embrace modern construction methods (modular/off-site), digitalization (BIM, AI), and sustainability-focused strategies will be best positioned to capitalize on the sector’s transformation. With the right policy support and market adjustments, the industry can deliver much-needed housing supply while meeting environmental and affordability goals in the coming years.

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Sources:

(EFOs - Office for Budget Responsibility) (EFOs - Office for Budget Responsibility) Office for Budget Responsibility – Real GDP growth forecasts for 2024–2028 (Oct 2024).

(IMF raises UK growth forecast, warns on debt as finance minister readies budget | Reuters) Reuters – IMF outlook raising UK 2024 growth forecast due to lower inflation and expected interest rate cuts.

(United Kingdom Construction Industry Report 2024-2028: Mixed Outlook with Growth Driven by Government Investment in Infrastructure and a Shift Towards Sustainability - ResearchAndMarkets.com | Business Wire) ResearchAndMarkets (Business Wire) – UK housebuilding segment challenges, housing target 300k vs ~230k achieved in 2023, impact of high mortgage rates on developer activity.

(United Kingdom Construction Industry Report 2024-2028: Mixed Outlook with Growth Driven by Government Investment in Infrastructure and a Shift Towards Sustainability - ResearchAndMarkets.com | Business Wire) ResearchAndMarkets (Business Wire) – Government support: Affordable Homes Programme £12.2bn (2021–26) and Housing Infrastructure Fund £1.1bn for 70k homes, plus brownfield presumption policy.

(Worker shortages raise doubts over Britain's plan to build for growth | Reuters) Reuters – Pledged reforms by a potential new government: plan to build 1.5 million homes by 2029 in England, overhaul planning system and free up land.

(UK Construction sector set to overcome 2024 headwinds and return to growth) PwC Construction and Housebuilding Outlook (Sep 2024) – Forecasts a -2.1% real spend contraction in construction in 2024, then +2.9% growth in 2025; new build residential expected +7% in 2025.

(UK Construction sector set to overcome 2024 headwinds and return to growth) PwC Outlook – Private housebuilding in 2024 challenged by high mortgage costs and cost inflation, new build residential output forecast to decline 7% in 2024 (real terms).

(UK Construction sector set to overcome 2024 headwinds and return to growth) PwC Outlook – More positive outlook from 2025: renewed housing targets, easing inflation/interest improving affordability; residential sector forecast +7% real spend growth in 2025.

(Building Material Prices: 0.2% Rise in Nov 2024) (Building Material Prices: 0.2% Rise in Nov 2024) Cladco (Dept for Business & Trade data) – Building material prices up ~35% since 2020; slight decline (–0.3%) in material costs over Nov 2023–Nov 2024, though Nov 2024 saw a marginal uptick after 5 months of falls.

(Navigating Price Inflation and Material Delays in the UK Construction Industry - The Build Chain) (Navigating Price Inflation and Material Delays in the UK Construction Industry - The Build Chain) The Build Chain – Supply chain issues causing high prices and shortages of timber, steel, cement, plastics; advice that diversifying supply chain and local sourcing can mitigate global disruptions.

(Worker shortages raise doubts over Britain's plan to build for growth | Reuters) Reuters – Construction Products Association predicts ~500,000 construction workers to retire in next 10–15 years (~25% of workforce), highlighting an aging workforce issue.

(Worker shortages raise doubts over Britain's plan to build for growth | Reuters) Reuters – Government set up 32 skills hubs to train 5,000 more homebuilding apprentices annually by 2028; CITB said ~33,600 apprentices in 2022/23, versus 50,000 needed each year to meet demand.

(Worker shortages raise doubts over Britain's plan to build for growth | Reuters) Reuters – Post-Brexit immigration system for construction workers is cumbersome; even after adding construction roles to shortage list, homebuilders aren’t using it due to complexity.

(City Monitor | Centre for Cities    ) Centre for Cities – Average house prices declined across the UK from 2023 to 2024; only 16 cities saw price rises (vs 39 cities the year prior), easing affordability slightly.

(Halifax affordability review - Lloyds Banking Group plc) Lloyds Banking Group (Halifax) – Average house price to earnings ratio eased to 6.55 in 2024 (down from 6.62 in 2023 and a peak of 7.24 in 2022) due to wage growth outpacing house price growth; mortgage costs ~29% of income on average.

(Cost of buying average home in England now unaffordable, warns ...) The Guardian – Analysis indicating that the average household needs 8.6× its disposable income to afford an average home, meaning only the richest decile can readily buy.

(Halifax affordability review - Lloyds Banking Group plc) Lloyds Banking Group (Halifax) – North East England is the most affordable region (house price to earnings 4.38, improved from 4.56 a year prior due to 7% wage growth vs 2.4% price growth); many most affordable local areas are in the North.

(Halifax affordability review - Lloyds Banking Group plc) Lloyds/Halifax – Example of Elmbridge, Surrey as the least affordable area with house price to earnings ratio of 17.54.

(Savills USA | UK Build to Rent Market Update – Q3 2024) Savills – £800 million was invested in UK Build-to-Rent in Q3 2024, a marked improvement on the same quarter in previous year, indicating strong institutional investment in rental housing.

(The rural housing market after the COVID-19 pandemic) University of Liverpool (via ECB blog) – Noting pandemic-induced rural housing demand has subsided somewhat with some demand returning to urban markets as remote work patterns evolve.

(Momentum growing for modular housing - PropertyWire) PropertyWire – Citing Make UK Modular’s calculation that the industry will be able to build 20,000 modular homes a year by 2025, roughly 20% of the 100k annual housing shortfall.

(Future Homes 2025 – A New Standard for Energy Efficient Homes - The Carbon Literacy Project) Carbon Literacy Project – UK residential housing accounts for ~16% of total national carbon emissions; CCC insists these emissions must be eliminated for 2050 net-zero goal.

(Future Homes 2025 – A New Standard for Energy Efficient Homes - The Carbon Literacy Project) (Future Homes 2025 – A New Standard for Energy Efficient Homes - The Carbon Literacy Project) Carbon Literacy Project – From 2025, the Future Homes Standard will require new homes to have 75–80% lower carbon emissions (versus current standards), focusing on improved insulation, glazing, and low-carbon heating (e.g. heat pumps).

(Future Homes 2025 – A New Standard for Energy Efficient Homes - The Carbon Literacy Project) Carbon Literacy Project – Criticism that Future Homes Standard only makes homes “zero carbon ready” pending grid decarbonization, whereas CCC recommended all new homes be truly net-zero by 2025; also notes omission of mandated solar panels in FHS as a concern.

(Summary of the Great British Insulation Scheme: June 2024 - GOV.UK) Gov.uk (Ofgem summary) – The Great British Insulation Scheme (announced March 2023) is a £1 billion program to help insulate around 300,000 of the least-efficient homes by 2026, reducing energy bills and carbon emissions.

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