Housing Supply Chain Crisis!

The supply chain crisis is seeping into almost every corner of life in the UK, with prospective homeowners likely to be affected by delays to new homes.

A drop in the number of new homes being built could lead to even further trouble for first-time buyers in 2022, as the property market boom pushes prices to unattainable levels for many wannabe homeowners.

According to Government data, the cost of building materials for new homes skyrocketed by 22.6% year-on-year in October. The effects are being felt across the industry - and are likely to contribute to a rise in house prices in 2022. Housebuilders have been grappling with the scarcity of new building materials and increased costs, all of which have impacted the delivery and cost of new homes.

The number of new homes being built has fallen dramatically in recent months. Analysis by Knight Frank shows the number of new builds is down 11% on the same period in 2019. The slowdown is remarkable given the housing boom caused by the coronavirus pandemic, which has seen thousands move on from city living to larger homes in the countryside.

Housing developers build new homes according to the “absorption rate” - the maximum number of homes than can be produced without inflating supply to a level where prices begin to decline. As sales rise, builders ramp up the building of new homes, as it's unlikely the value will be affected. New-build starts are normally equivalent to 13% of housing transactions in the market. However, in the first half of 2021, that fell to 9%. Across the same period, transactions on the housing market jumped by an unprecedented 50% - down to the Stamp Duty Holiday and the third lockdown.

But developers didn’t boost the number of homes built accordingly - leading to even further inflated prices on new build homes. Smaller home building businesses have been the worst affected by the ongoing supply chain crisis, as larger developers benefit from certainty of demand, unlike their smaller counterparts.

But neither can escape the troubles that come with a lack of materials. The cost of timber has boomed by around 50% due to shortages, and overall build costs have risen in line with the supply chain woes and pent-up demand for new homes.

According to the latest House Builders Survey by the Federation of Master Builders, 62% are struggling with material shortages currently. What’s more, 63% of small builders said they are limited in their ability to build new homes due to a lack of land, and 53% are struggling to recruit the workers they need to build.