Why has it become SO expensive to build a home? Red tape, council levies and design rules have made property cost £76k more

There is a sharp decline in the number of homes being built in England.

According to S&P Global UK Construction PMI, construction production fell at the fastest rate in six years in May; This was the seventeenth consecutive month that the index reported a decline.

And things are unlikely to improve any time soon. Annual planning permissions for new homes have fallen by 39 per cent in the three years to the end of 2025, to just 180,000, according to property firm Savills.

In the same period, construction starts decreased by 31 percent.

While supplier issues and planning restrictions have led to some projects being stalled, real estate experts say the combination of falling house prices and high construction costs is actually what is preventing more homes from being built.

In fact, home builders stopped construction because the totals didn’t match up.

It now costs an average of £76,000 more to build a house than in 2020, according to new research from the Home Builders Federation (HBF).

In percentage terms, the average costs of building a new home have increased by 50 percent in the last 10 years, according to data from the Building Cost Information Service (BCIS).

But insiders say the situation is even worse in some areas.

A construction industry source who wishes to remain anonymous says the cost of construction in London has increased by a whopping 75 percent since 2016.

They say the cost of delivering a typical two-bedroom flat of 70 square meters has risen from £245,000 in 2016 to around £430,000 today, representing a 75 per cent increase.

During this time, the average value of a flat in London increased by only around 6 per cent, according to Land Registry figures.

About half of the extra cost comes from the increase in materials and labor, and the other half comes from regulations, duties and taxes.

The situation has become so bad that, by the end of last year, work had been halted on 5,009 homes across 51 development sites in the capital, according to property research company Molior.

He says development plans were halted either because the developer went bankrupt due to rising construction costs or because work was deliberately stopped because the sales market was too weak.

Tim Craine, director of Molior and a leading authority on housing development, says buyers have almost disappeared in London.

‘Pretty much 99 per cent of the London market is flats,’ says Craine, ‘investors have decided to buy to let them go and many people are now trying to get out of the market as quickly as possible.

‘Most overseas buyers have long since disappeared, thanks to tax changes introduced by George Osborne nearly a decade ago.

‘And pension funds have stopped investing in construction-to-rental since 2023 because they can now make bigger and safer returns in the gilt market.

‘As for first-time buyers, they need to find cash upfront for stamp duty and a deposit and then struggle with higher mortgage rates.’

Property writer and commentator Peter Bill adds: ‘Big builders only build when they think they can make a profit.

‘None of them build this many buildings’ [homes] Because right now the market is stagnant. ‘Labour’s promise to create 1.5 million by 2029 is now a joke.’

It’s not just about inflation

Many attribute this to the increase inflation Since the pandemic, but even before that, the cost of building a home was already rising.

Before 2020, construction costs were rising due to labor shortages, rising material prices and the depreciation of the Sterling following the EU referendum.

These existing pressures were then further intensified by global supply chain disruptions, extreme energy price inflation, material shortages, and volatility in commodity markets.

Regulatory changes regarding fire safety and energy efficiency have also contributed to increased costs.

Housebuilders are also required to pay community infrastructure levies (CIL) to local councils to obtain planning permission for their development.

London has some of the highest rates. Our in-house sources told us the top bill for a project in the capital was just £90 million, adding around £50,000 to the cost of each home built.

More counties are reviewing and increasing these community infrastructure taxes; costs add up to an average of £16,000 per home.

No buyers: Off-plan sales in London have fallen from more than 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 are also having to deal with new design standards that dictate how they design flats.

This means developers must now build blocks of flats with a high proportion of double-fronted houses (with windows on two or more sides). All homes with three or more bedrooms must now be duplex.

In the case of apartment blocks, this often means building complex designs with walls jutting in and out. According to an anonymous source, this adds more than £20,000 to the cost of the average home.

They also need to create at least 5 square meters of private outdoor space for each bedroom house, with an extra 1 square meter for each person thereafter.

Since two-bedroom apartments can accommodate three or four people, six or seven square meters are needed depending on their size. The minimum depth and width of balconies should be 1.5 meters.

Buildings now need to have much more cycle storage space; So much so that, on average, less than 25 percent of storage space is now used.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, says: ‘What is clear is that costs have risen significantly in recent years, partly due to the sharp rise in material costs, but also due to the weight of regulation.’

Why are there no buyers?

The root of the problem is that buyers are no longer willing or able to pay what builders need to sell these homes.

Some of these relate to higher levels mortgage ratesThis affected what people were able to pay – especially first time buyers.

The difference between buying with the 4.5 percent mortgage rate commonly available today and the 1.5 percent mortgage rate commonly available five years ago is large enough to impact how someone might be ready to purchase a home.

For a £300,000 mortgage repaid over 25 years, this is the difference between paying £1,667 and £1,200 a month.

While average incomes have increased in the last five years, rising inflation and freezing income tax The thresholds will leave many people feeling like they can no longer afford the increase in mortgage rates.

Property investors are buying in fewer numbers due to higher taxes and more red tape, including the recent Tenants’ Rights Bill. Many are selling now.

Home builders often rely on investors selling off-plan before homes are completed. The share of new homes sold off-plan last year reached the lowest rate since 2013, Connells data shows.

Off-plan sales in London have fallen from more than 60 per cent of transactions in 2014 to just 11 per cent in 2025, according to property firm JLL.

The end of the Help to Buy scheme also affects housebuilding.

The scheme increased demand for new-build flats between 2013 and 2021 and raised prices, allowing builders to make profit margins.

The program has helped more than 375,000 people get on the housing ladder, many in new-build flats.

Latest figures show completions of new homes falling to 190,602 by March 2025, according to Savills; This means completions have fallen by 10.2 per cent in the two years since the Help to Buy scheme ended.

stamp dutyWhile not new, it has become an increasingly heavy burden for homebuyers and especially investors who see the additional fees they pay increase.

rent problem

Concerns about rental properties and high service fees are also putting off some buyers.

The average service charge for a flat in the UK is currently £2,845 per year, according to property analytics firm PropertyData. This rises to an average of £3,919 in London.

Bill says demand for more expensive new-build homes tends to collapse when the housing market is strained, and service charges make the situation worse.

Bill says, ‘Newly built homes are like new cars; “The moment you step inside, the value drops 15 to 20 percent,” he says.

‘In a market where second-hand house prices are increasing, buyers are becoming more aware of this.

‘Those considering buying a flat have the added worry of being trapped by complex tenancy laws or facing huge bills for repairs to the block. These factors, together with excess supply, are suppressing prices.’