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Real Estate / Вusiness / Analytics / Reviews / News / United Kingdom / Real Estate Britain 02.06.2025
UK Construction Market Shows Early Signs of Recovery – Knight Frank Survey

In 2025, the UK construction sector is showing cautious signs of recovery. Amid urban planning reforms and political changes, developers are less likely to cite project approvals as the main bottleneck. However, the industry still faces several structural issues — from buyer shortages and labor constraints to pressure in the affordable housing segment, Bloomberg reports, citing Knight Frank data.
Less Bureaucratic Pressure
The share of developers considering planning delays as a serious barrier dropped to 61% between January and March 2025, according to Knight Frank's survey of over 50 major homebuilders. While still a majority, this figure is 27 percentage points lower than the same period in 2024 and the lowest since such surveys began in 2021.
Experts attribute this to several government moves aimed at modernizing the planning system — including the reintroduction of mandatory local housing targets, which prompted municipalities to speed up approval processes. Developers also gained more flexibility in working with "green belt" areas that were previously off-limits.
"Planning anxiety has existed long before our surveys, but we are now seeing how policy changes are translating into practice and boosting market confidence," said Chris Benham, Head of Planning at Knight Frank’s London office.
Moderate Optimism in Forecasts
The UK's Office for Budget Responsibility (OBR) recently revised its housing construction forecast upward, predicting around 1.3 million new homes by the end of the decade. This update reflects the expected impact of reforms proposed by the Labour Party. Their 2024 programme calls for streamlining approval procedures, faster permits, and better use of public land.
It’s rare for the OBR — an institution usually reserved in political assessments — to issue such a positive outlook on a party’s plan. Still, the government is unlikely to meet the 300,000-home target in 2025, falling short by about 25%, as even the most effective reforms take time to implement.
Affordable Housing Under Pressure
A key hurdle to meeting housing targets lies in delivering affordable housing. According to Knight Frank, about one-third of developers believe that only half of the 300,000 homes will be built this year, citing difficulties in partnering with housing associations under financial stress.
Soaring costs, decarbonization mandates, and stricter fire safety rules have pushed housing associations to borrowing limits, forcing them to scale back construction plans. This leads to delays and volume cuts on projects that were supposed to deliver a large share of affordable units.
"Housing associations once played a central role in housing supply. Now they simply can’t keep up," said Anna Ward, Senior Analyst at Knight Frank. She argues that government efforts will remain limited unless these groups’ financial issues are resolved.
Sales, Costs, and Labour Woes
Even with reduced red tape, developers face other major challenges. Around 80% report difficulties finding buyers for affordable homes, driven by the inactivity of associations and weak consumer demand amid economic instability. As a result, some developers are reconsidering asset use, converting social rentals into shared ownership models.
Roughly half of the developers admit that labor shortages impacted their 2024–2025 schedules. Knight Frank notes the biggest gaps are in regions with high construction activity — notably the South East and Greater London.
Additional complications include rising material costs, tighter building safety regulations, and delays in affordable housing project approvals — all of which affect profitability and economic viability.
"The main challenge today is ensuring financial sustainability. Construction costs have surged, and developers are constantly balancing social responsibility and commercial feasibility," explained Oliver Knight, Head of Residential Research at Knight Frank.
Still, signs of renewed confidence have emerged. With inflation easing and interest rates expected to fall, UK home transactions could grow by 10% in 2025, predicts RBC Capital Markets. But for this to happen, government action is needed to address affordable housing funding.
"We just need the government to lift the curtain on financing," summed up RBC analyst Anthony Codling.