The UK housing minister has argued that house prices will fall in the long term as the government encourages developers to compete on volume and deliver more homes.
A housing strategy due in the coming weeks will encourage alternative business models to those used by large developers, as well as a bigger role for the state.
Matthew Pennycook, housing minister, told the FT: “The private market as it’s currently constituted will not on its own initiative, even if it’s highly competitive, produce sufficient housing to meet overall housing need.”
Signalling a desire for far-reaching reform of the market, he said: “How we get more volume out of the system is one of the fundamental challenges we face.”
While Pennycook said the current housebuilding model “locks in an upward ratchet of land and house prices”, he argued that a better system would make homes more affordable by flattening prices.
If the government’s target of building 1.5mn homes by the end of the parliament is hit and such levels of housebuilding are sustained, “we will be looking at the levelling out of prices and then over the real medium- to long-term perhaps their gradual reduction”, he said.
He added there were “people in London that bought land at the top of the market for too high a price and are now sitting on it. And there will probably need to be a market adjustment in London”.
Since taking power in 2024, Sir Keir Starmer’s government has made liberalising the planning system a priority, with measures including the reintroduction of compulsory local housing targets, allowing building on parts of the greenbelt and making it harder for local objections to block development.
Despite this, Labour’s target of 1.5mn new homes is looking increasingly unlikely, with just 309,600 delivered since the election.
Pennycook insisted the target could still be met, but said the government was finishing “the bulk of the supply-side measures” and would now focus on ensuring the industry stepped up building.
“There is a quid pro quo here,” Pennycook said. “There is a collective interest in boosting the numbers. We’ve been very clear with the developers — we want to see that.”
Housebuilders say they build according to the demand in the market and have called on the government to unleash help-to-buy programmes or stamp duty holidays to help stimulate it.
Steve Turner, executive director of the Home Builders Federation, which represents commercial housebuilders, said “the lack of affordable mortgage lending and any government support scheme for buyers for the first time in decades is suppressing the demand for homes and preventing the industry from investing in new sites, supply chains and people”.
Pennycook said there were “live discussions in government about what we might do” to stimulate demand.
But the current business model of big developers “does constrain supply”, Pennycook argued. He said this was not because of “bad behaviour” by companies, but a market based on high prices where developers “can’t afford to build and sell homes too quickly”.
Developers reject this analysis. “Homebuilders are very keen to build at pace,” said Graham Prothero, chief executive at housebuilder MJ Gleeson. “We do not make money by sitting on land. Once we own the land, it’s costing us money.”
Prothero said the government had made improvements to planning policy. “But the reality is achieving a consent to start developing a site remains a tortuous process, constrained by lack of resourcing in local planning departments and that is the biggest difficulty I have in getting sites open quicker.”
There is particular concern about London, where housebuilding has fallen more than 80 per cent over the past decade, with construction starting on just 5,547 homes last year.
Pennycook acknowledged a “perfect storm” in the capital and said government measures such as cutting affordable housing requirements and improvements in the Building Safety Regulator, blamed for delays in signing off tall buildings, would help.
To boost construction, Pennycook said he would soon set out a strategy to “encourage and support different housebuilding models to take hold in the market”.
Criticising an “overly speculative model of development” that was “based on maximising short-term return on capital investment rather than volume”, Pennycook said his strategy would involve “the state leaning in to diversify the way housing is delivered”.
He said: “We need that diversification — more SMEs back in the game, producing homes at scale, councils building again at scale, build-to-rent operators and the state doing its part on larger sites in particular.”
Pennycook praised a joint venture signed in September between Homes England and Vistry to develop a series of neighbourhoods around the country, which he argued was “less geared to short-term margins, more geared to long-term value creation and turnover”.
The deal was “a good example of a partnership approach where government is leaning in and encouraging a different type of delivery”, he said. Unlike other listed housebuilders, Vistry builds the majority of its homes under contracts with rental and affordable housing providers.
Homebuilders say the partnerships model is a critical part of diversifying UK housebuilding but that private open-market development is still needed.
Ministers are currently deciding how to spend a £39bn fund for affordable housing over the next decade. Pennycook said he wanted a bigger role for government in the market, both in leading big developments and entering partnerships with housebuilders.
Volume housebuilders would not be forced to change but Pennycook said he would be “trying to get them to do things slightly differently”, adding: “If we can encourage them towards that partnership mixed-tenure model approach, then we should.”