The number of homes being built in Britain is in sharp decline.
Construction output fell at its fastest pace for six years in May, according to the latest S&P Global UK Construction PMI - the seventeenth consecutive month that the index had reported a decrease.
And things do not look likely to improve any time soon. According to the property firm Savills, annual planning consents for new homes dropped by 39 per cent in the three years to the end of 2025 to just 180,000.
During the same time, construction starts were down 31 per cent.
While supplier issues and planning restrictions have led to some projects being stalled, property experts say a combination of falling house prices and higher build costs are what is really stopping more homes being built.
Effectively, housebuilders have stopped building because the sums don't add up.
On average, it now costs £76,000 more to build a home than it did in 2020, according to new research from the Home Builders Federation (HBF).
In percentage terms, the average costs involved in building a new home have increased by 50 per cent in the last 10 years, according to the Building Cost Information Service (BCIS) data.
But insiders say that the situation on the ground in some locations is even worse.
More expensive: The average costs involved in building a new home have increased by 50% in the last 10 years, according to BCIS data
A construction industry source, who wishes to remain anonymous, says the cost to build in London has increased by a whopping 75 per cent since 2016.
They say the cost of delivering a typical two-bed flat of 70 square metres has gone from £245,000 in 2016 to around £430,000 today representing a 75 per cent increase.
During that time, the average value of a flat in London has risen by only around 6 per cent, according to Land Registry figures.
Roughly half of the extra cost is relates to an increase in materials and labour, the other half is due to regulations, levies and taxes.
The situation has become so bad that by the end of last year, work had stopped on 5,009 homes at 51 development sites across the capital, according to the property research firm, Molior.
It says development schemes are being halted, either because the building contractor has gone bust due to rising construction costs or because work is deliberately on hold due to the sales market being so weak.
Tim Craine, director at Molior and a leading authority on residential development says buyers have all but disappeared in London.
'Pretty much 99 per cent of the London market is flats,' says Craine, 'buy-to let investors have gone with many trying to now exit as soon as they can.
'Most overseas buyers have long since vanished thanks to tax changes introduced by George Osborne roughly a decade ago.
'And pension funds have stopped investing in build to rent since 2023 because they can now get bigger and safer returns in the gilt market.
'As for first-time buyers, they have to find the upfront cash for the stamp duty and for a deposit and then contend with higher mortgage rates.'
Property author and commentator, Peter Bill, adds: 'Big builders only build when they think they can make a profit.
'None are building that many [homes] at the moment because the market is in the doldrums. Labour's pledge to build 1.5million by 2029 is now a standing joke.'
It isn't just about inflation
Many blame this on the rise in inflation since the pandemic, but the cost of building homes was already increasing prior to that.
Pre-2020, building costs were rising due to labour shortages, rising material prices, and Sterling depreciation following the EU referendum.
Those existing pressures were then intensified by global supply chain disruption, extreme energy price inflation, material shortages and volatility in commodity markets.
Regulatory changes around fire safety and energy efficiency have also contributed to higher costs.
Housebuilders must also pay community infrastructure levies (CIL) to local councils, in order to get planning permission on their developments.
London has some of the highest rates. Our property insider said the highest bill on one development in the capital was just shy of £90million, adding around £50,000 in cost to each home that was built.
More boroughs are reviewing and increasing these community infrastructure levies, with costs averaging an additional £16,000 per home.
No buyers: In London, off-plan sales have fallen from over 60% of transactions in 2014 to just 11% in 2025, according to property firm JLL
Design standards add thousands to costs
Builders in the capital also have to contend with new design standards which dictate how they can design flats.
It means developers now have to build apartment blocks with a high proportion of dual aspect homes - those which have windows on two or more sides. All homes with three or more bedrooms have to be dual aspect now.
In the case of apartment blocks, this often means building to complex designs with walls jutting in and out. It adds more than £20,000 to the cost of an average home, according to our anonymous insider.
They must also create a minimum of 5 square metres of private outdoor space for every one bedroom home, with an extra 1 square metre for each person after that.
Two bedroom flats can house three or four people so require six or seven square metres depending on how big they are. Balconies must have a minimum depth and width of 1.5metres.
Buildings must also now have much more cycle storage - so much so that less than 25 per cent of the storage now gets used on average.
But the extra regulatory costs facing developers is not solely a London issue.
For example, developers are now required to install a second staircase in all new residential buildings in England that are 18 metres or taller - typically six storeys or more.
Simon Rubinsohn, chief economist at The Royal Institution of Chartered Surveyors, says: 'What is clear is that costs have increased significantly over recent years, partly because of a sharp uplift in material costs, but also because of the weight of regulation.'
Why are there no buyers?
At the heart of the problem is the fact buyers are no longer prepared or able to pay the amount housebuilders need to sell these homes for.
Some of this is to do with higher mortgage rates, which have impacted how much people can afford to pay - particularly first-time buyers.
The difference between buying with a 4.5 per cent mortgage rate typically available today and the 1.5 per cent rate widely available five years ago is big enough to impact what someone might be prepared to buy a house for.
On a £300,000 mortgage being repaid over 25 years, it is the difference between paying £1,667 and £1,200 a month.
And while average incomes have risen over the last five years, rising inflation and frozen income tax thresholds will have left many feeling no better able to handle the rise in mortgage rates.
Property investors are also buying in smaller numbers due to higher taxes and more red tape, including the recent Renters' Rights Bill. Many are now selling.
Housebuilders typically rely on investors to sell off-plan, before the homes are completed. The share of new homes sold off-plan last year reached the lowest proportion since 2013, according to Connells data.
In London, off-plan sales have fallen from over 60 per cent of transactions in 2014 to just 11 per cent in 2025, according to property firm, JLL.
The ending of the Help to Buy scheme is also having an impact on housebuilding.
Between 2013 and 2021, the scheme drove demand for new build flats and pushed prices higher, enabling builders to make their profit margins.
The scheme helped more than 375,000 people onto the housing ladder, most of them in new-build flats.
The latest figures show new home completions fell to 190,602 in the year to March 2025, according to Savills, meaning completions have dropped by 10.2 per cent in the two years since the Help to Buy scheme ended.
Stamp duty, while not new, has also become an increasingly heavy burden for home buyers, and particularly investors who have seen the surcharge they pay go up.
The leasehold problem
Nervousness about leasehold properties and high service charges are also putting off some buyers.
The average service charge for a flat in the UK is now £2,845 a year, according to property analytics firm PropertyData. That rises to an average of £3,919 in London.
Bill says demand for pricier new build homes tends to collapse when the housing market is under strain, and that service charges have exacerbated the situation.
'New build homes are like new cars - as soon as you step inside the value drops by 15 to 20 per cent,' says Bill.
'Buyers become much more aware of this in a market where second hand home prices are only creeping up.
'Those contemplating buying flats have the additional worry of being snared by complex leasehold laws or being faced with huge bills for repairing the block. These factors, along with oversupply, are depressing prices.'
