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Macroeconomics and the UK housing crisis
How the changing global economic climate could affect the delivery of new homes in the UK
GROWTH, REGENRATION & DEVELOPMENT
Robert Alster
Investment and risk specialist focusing on housing finance
Robert Alster
Investment and risk specialist focusing on housing finance
Issue 78 | June 2025
Recent weeks have probably been some of the most important for the UK housing market. You may think that macroeconomics at government level has little to do with housing in the UK but President Trump’s Executive Orders don’t just affect the UK steel and car industries but housing as well.
There are two obvious consequences. First, the longer the trade war with China continues the more likely it is that China diverts exports to the US over to Europe and the UK instead. China is the leading exporter of building materials to the UK so that should put a cap on UK building material price rises. However, as I write this, President Trump has just agreed a so-called “reset” with China so we’ll have to see whether this leads to wider stability between the world’s two largest economies.
Second, the longer tariffs are in place, the slower global (and UK) economic growth will be, so interest rates will be on a downward trajectory as central banks seek to stimulate the economy. Interest rates are the single biggest driver, on a par with government regulation, for the UK housing market.
“Interest rates are the single biggest driver, on a par with government regulation, for the UK housing market.”
Spending power and new homes
Short-term interest rate reductions give consumers more spending power and reduce mortgage costs. Long-term (e.g. 10 year) interest rate reductions (which normally follow short-term interest rates) affect fixed term mortgage rates – so good news for UK housing. The Bank of England has been early in recognising this trend and reducing interest rates accordingly.
Another major piece of news was the announcement by the London Mayor, Sadiq Khan, to build houses on the previously sacrosanct green belt. The bad news, of course, is that this is a desperate attempt to stave off the worst housing crisis in the UK in more than 50 years. London alone is building just 35,000 home each year when it needs at least 88,000. This shortfall is pushing up inner-London prices and rents to levels that key workers and developers of low-cost housing cannot afford, which threatens the future growth and sustainability of the capital city.
Nationally, the Government’s 1.5 million housing target over five years will not be met, owing to a shortage of building skills and length and complexity of planning consent for new housing, spurring the need to look yet again at brownfield, MOD, and NHS land banks.
There’s also a social cost as well with a record number of young professionals still living at home with their parents and inner-city primary schools closing as young families cannot afford to live there.
Finding the positives
This may all sound overly downbeat for those involved in the housing sector but, to end on a positive note, the high priority given to housing by this government with the new 10-year plan, an increase in overall funding, the opening up of the green belt, and announcement in June of a new housing plan for London, indicate a momentum and willingness to address the crisis that we haven’t witnessed in a long time.
