--- title: "Q4 2025 construction bulletin: Supply constraints, demand opportunity" description: Q4 2025 sees UK housing construction volumes depress amid rising costs and record-low planning approvals, yet demand remains strong. image: https://www.shojin.co.uk/hubfs/Blog/2025/Development-market-update-Q4.jpg --- [Skip to content](https://www.shojin.co.uk/insights/q4-2025-construction-bulletin-supply-constraints-demand-opportunity#main-content) [![shojin-logo](https://www.shojin.co.uk/hs-fs/hubfs/shojin/shojin-logo.png?width=92&height=30&name=shojin-logo.png) ![logo-light](https://www.shojin.co.uk/hs-fs/hubfs/shojin/logo-light.png?width=92&height=30&name=logo-light.png) ![shojin-logo-fixed](https://www.shojin.co.uk/hubfs/shojin/shojin-logo-fixed.svg)](https://www.shojin.co.uk) - [Invest](https://www.shojin.co.uk/insights/q4-2025-construction-bulletin-supply-constraints-demand-opportunity#invest) - 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For lenders and developers, these supply-side constraints create both challenges and opportunities—but only for those who price them correctly. The delivery environment has changed. Demand hasn't.   **UK housing construction output: 2015-2025** Volume index showing the recovery that stalled     *Source: ONS Construction Output in Great Britain, Table 1a - Housing construction (seasonally adjusted, volume). Rebased to Jan 2022 = 100.*     ###### Housing construction: Volumes flat, costs rising   Latest data (July 2025): Housing construction output has recovered from the COVID crash but remains essentially flat, at just 3.5% above the January 2022 baseline. Monthly volatility continues—July showed 0.2% growth following June's 0.3% and May's -0.6%—but the trend is clear: volumes have plateaued.   The problem: This volume measure hides a critical issue. While output remains stable in unit terms, BCIS forecasts 14% cost increases through Q3 2030, with labour costs rising 16% and materials 13%. Construction wages are growing at 7.1% annually—faster than any other sector and well above the 5.3% economy-wide average.   What this means for Q4: Housing construction volumes are stable, but margins are under pressure. Build costs are outpacing volume growth and, in many regions, house price growth. This creates a margin squeeze: developers are building the same number of units but each one costs more to deliver, while exit prices in slower markets haven't kept pace. For schemes with the right assumptions built in from the start, this is manageable. For those using outdated cost models, it creates challenges.   ###### Planning approvals: Record lows   **UK residential planning approvals: Q1 2019 - Q2 2025** Quarterly units and projects approved - lowest levels since 2012     *Source: Home Builders Federation Housing Pipeline Reports (Glenigan data)*     The scale of the problem: Planning approvals have reached the lowest levels since records began in 1979:   - 7,000 applications granted permission in Q2 2025 (8% decline year-on-year) - 28,700 residential applications approved annually (down 9%) - 240,661 units approved annually, 40% below peak levels Government response: Housing Secretary Steve Reed branded the figures "unacceptable," with the government's Planning and Infrastructure Bill currently progressing through the House of Lords after passing the Commons in June 2025. The Bill promises significant reforms including halving approval times for major infrastructure (from four years to under two), streamlining statutory consultees, and introducing Environmental Delivery Plans to replace individual mitigation paperwork.   What this means: Even assuming the Bill passes by year-end, the OBR projects housing delivery won't reach target levels until 2029/30—a 4-5 year lag from legislation to on-site delivery. Meanwhile, approvals still need to increase by over 150% to meet the government's 370,000 annual target. This requires not just reformed processes but fundamental shifts in local authority capacity and risk appetite. For developers, this means building longer programme assumptions into schemes from day one.   ###### London housing: Scale of the challenge   The numbers: The Home Builders Federation's September "Mind the Gap" report shows how bad things have become:   - 30,000 completions in year to June 2025 (down 12% annually) - 966 projects approved in 12 months—lowest since 2006 records began - 38% decline in new site starts - London's share of national delivery: 15% (down from 20% a decade ago) The delivery gap: London needs 88,000 homes annually to meet government targets. Current delivery of 30,000 requires a 175% increase—effectively tripling output.   Why London is different: The Building Safety Regulator affects high-rise buildings nationwide, but London's dependence on apartment developments means longer approval timelines: 10,000 homes stuck in Gateway 2 process for over six months. This doesn't make London development impossible—it just requires different programme and cost assumptions than regional schemes.   London's policy burden: While planning problems are national, London faces additional layers: - 35% affordable housing requirements - Dual staircase mandates for apartments - Carbon offset charges and Infrastructure Levies - 88 separate residential policies in the London Plan Combined with nationwide BSR delays, this means London schemes require more robust financial structuring and longer programme assumptions than regional equivalents.   ###### The demand side: Why this creates opportunity   While supply faces these constraints, demand fundamentals remain solid—creating opportunity for developers who can navigate the new delivery environment.   Mortgage market recovery: August 2025 mortgage approvals hit 65,352, up 4.6% year-on-year and matching pre-pandemic averages. This isn't weak demand—it's functioning buyer appetite that would absorb significantly more supply if it were available.   Affordability at decade-best levels: The house price-to-earnings ratio hit 5.75x in August—the lowest in over a decade, down from 2022's 6.9x peak. Five-year fixed mortgages now average 4.3%, down from 5.7% at late 2023 peaks. Combined, these create genuine purchasing power that supports transaction volumes.   Supply constraints support values: London's 175% delivery gap—needing to triple output from 30,000 to 88,000 homes annually—represents chronic undersupply. Planning approvals at 1979 lows mean the pipeline isn't about to flood the market. For schemes that do complete, this supply-demand imbalance provides pricing support.   Higher barriers = less competition: The combination of cost inflation, regulatory complexity, and extended timelines raises barriers to entry. This filters out marginal players and reduces competition for developers with the capability and capital to execute properly structured schemes.   ###### What happens sext   These three trends create potential feedback loops if left unaddressed.   Planning approvals down 40% means fewer projects starting, which risks shrinking construction sector capacity and pushing costs higher when demand returns—making future schemes require more careful structuring.   London's BSR backlog is causing some developers to avoid high-rise projects, yet the planning system remains set up for apartment-led developments, creating a mismatch between what gets approved and what's being submitted. Meanwhile, cost inflation combined with flat volumes squeezes margins, requiring lenders and developers to work together on realistic assumptions from day one.   The bigger picture: These feedback loops aren't inevitable. The Planning and Infrastructure Bill addresses key bottlenecks, and if implemented properly with adequate local authority funding, could improve approval velocities meaningfully.   The government's commitment to updating National Policy Statements every five years and streamlining statutory consultees gives developers clearer regulatory frameworks to work within.   Success depends on execution—but the policy direction supports increased delivery.   ###### What this means for lenders   The short term:   - Planning reforms unlikely to impact Q4 delivery given approval-to-completion lags - BSR backlog will persist through year-end despite government intervention promises - Construction output likely to remain flat absent major policy intervention - But demand indicators remain positive: mortgage approvals up, affordability improving, buyer appetite present How to position for success: Lending in this environment requires:   - Geographic risk assessment: London schemes require longer programme assumptions (10,000+ homes stuck in BSR Gateway 2 for 6+ months) and must navigate 88 separate residential policies in the London Plan plus dual staircase requirements for apartments. Regional projects face simpler approval routes but must account for local planning authority capacity variations - Sector focus: Residential development remains viable where projects account for extended approval timelines, realistic cost inflation assumptions (BCIS: 15% through 2030), and regional market dynamics. Success comes from accurate assumptions rather than avoiding the sector - Early planning engagement: Build approval delays and cost inflation into project assumptions from day one—the developers succeeding in this market are those planning for 18-24 month programmes rather than hoping for 12 ###### Bottom line   Q4 2025 represents a recalibrated delivery environment. Housing construction stagnation, record-low planning approvals, and London's extended timelines aren't temporary blips—they're the new baseline that requires different approaches to project structuring and risk assessment.   But the demand side remains functional. Mortgage approvals are up 4.6% year-on-year, affordability has improved to decade-best levels, and chronic undersupply (London's 175% delivery gap, planning approvals at 1979 lows) supports values for schemes that do complete.   This creates opportunity for developers who understand the new rules: longer programmes, higher costs, more robust financial structuring. The barriers to entry are higher, which filters competition. The supply-demand imbalance favours those who can actually deliver.   Success requires working with partners who understand these dynamics from project inception—not applying old assumptions to a changed market.   ---   ##### FAQs   *Based on our analysis of Q4 2025 construction market data, here are the key questions development finance professionals are asking about current conditions.*   ###### How should lenders adjust their assessment criteria given the persistent construction weakness?   With construction output 5.1% below 2023 levels and planning approvals at historic lows, traditional programme assumptions no longer hold. Developers should extend anticipated delivery timeframes by 6-12 months, increase contingency reserves for regulatory delays, and weight geographic risk more heavily—particularly avoiding London's regulatory complexity where 10,000 homes remain stuck in BSR processes.   ###### Which regions offer the best risk-adjusted returns for development finance in this environment?   Regional markets with simpler planning requirements show the strongest fundamentals. While the North West faces -19% planning declines, the North East demonstrates +3% growth with less regulatory burden. Focus on regions outside London's 88 separate residential policies and BSR complications. Industrial and distribution sectors in these areas offer clearer approval pathways than speculative residential development.   ###### What does the 175% gap in London housing delivery mean for development finance strategy?   London's requirement to triple output from 30,000 to 88,000 homes annually is mathematically impossible given current approval rates and regulatory constraints. This creates a permanent supply shortage that should theoretically support values, but the delivery mechanism is broken. Development finance should focus on smaller, less complex schemes that can navigate BSR requirements or pivot to regional markets entirely.   ###### How long will these market conditions persist, and what catalysts could drive recovery?   The convergence of output decline, planning collapse, and regulatory complexity represents structural rather than cyclical change. Government reforms target 2025-26 implementation, but the scale of required change suggests 18-24 months before meaningful improvement in approval velocities. Recovery requires not just planning reform but fundamental rethinking of the regulatory burden that has made most residential development economically unviable.   --- *Analysis compiled September 2025 using official government data, industry body reports, and ONS statistics current as of September 2025. Sources: ONS Construction Output, Home Builders Federation, Building Design, BCIS Construction Industry Forecast.* [Written by Shojin](https://www.shojin.co.uk/insights/author/shojin) Published 02 October 2025 Back to top![](https://www.shojin.co.uk/hubfs/shojin/icons/backto-top.png) Subscribe to newsletter Subscribe to receive the latest Shojin insights and resources to your inbox every week. #### Share this post - [![](https://www.shojin.co.uk/hubfs/shojin/icons/share-linkedin.svg)](http://www.linkedin.com/shareArticle?mini=true&url=https://www.shojin.co.uk/insights/q4-2025-construction-bulletin-supply-constraints-demand-opportunity) - [![](https://www.shojin.co.uk/hubfs/shojin/icons/share-facebook.svg)](https://www.facebook.com/sharer/sharer.php?u=https://www.shojin.co.uk/insights/q4-2025-construction-bulletin-supply-constraints-demand-opportunity) - [![](https://www.shojin.co.uk/hubfs/shojin/icons/share-twitter.svg)](http://twitter.com/intent/tweet?text=https://www.shojin.co.uk/insights/q4-2025-construction-bulletin-supply-constraints-demand-opportunity) - [![](https://www.shojin.co.uk/hubfs/shojin/icons/share-email.svg)](mailto:?subject=https://www.shojin.co.uk/insights/q4-2025-construction-bulletin-supply-constraints-demand-opportunity&body=https://www.shojin.co.uk/insights/q4-2025-construction-bulletin-supply-constraints-demand-opportunity) More in this series ## Similar insights you might like [View all](https://www.shojin.co.uk/insights) [![](https://www.shojin.co.uk/hs-fs/hubfs/Blog/2025/08%20August/Four%20factors%20for%20developers/josh-olalde-X1P1_EDNnok-unsplash.jpg?width=352&name=josh-olalde-X1P1_EDNnok-unsplash.jpg)](https://www.shojin.co.uk/insights/four-cost-increases-hitting-sme-developer-margins) [Special reports](https://www.shojin.co.uk/insights/tag/special-reports), [Blog](https://www.shojin.co.uk/insights/tag/blog) ### [Four cost increases hitting SME developer margins](https://www.shojin.co.uk/insights/four-cost-increases-hitting-sme-developer-margins) If you're a developer using pre-2024 cost assumptions, your margins are under pressure. 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This website is a financial promotion approved by Shojin Financial Services Limited which is authorised and regulated by the Financial Conduct Authority (FRN: 716765) (see [www.fca.org.uk/register](https://www.fca.org.uk/firms/financial-services-register) for more information). Companies that issue investments on this platform, including bonds issued by Shojin entities, are not themselves regulated by the Financial Conduct Authority and investments made on this site are not covered by the Financial Services Compensation Scheme. The investment opportunities listed on this website are not offers to the public and can only be entered into by certain types of investors who have satisfied certain investment criteria. [![shojin-footer-logo](https://www.shojin.co.uk/hs-fs/hubfs/shojin/shojin-footer-logo.png?width=86&height=31&name=shojin-footer-logo.png)](https://www.shojin.co.uk) © 2026 Shojin — All Rights Reserved ```json { "@context" : "https://schema.org", "@type" : "BlogPosting", "author" : { "@type" : "Person", "name" : "Shojin", "url" : "https://www.shojin.co.uk/insights/author/shojin" }, "dateModified" : "2025-10-03T09:14:20.697Z", "datePublished" : "2025-10-02T12:33:04.000Z", "headline" : "Q4 2025 construction bulletin: Supply constraints, demand opportunity", "image" : [ "https://www.shojin.co.uk/hubfs/Blog/2025/Development-market-update-Q4.jpg" ], "mainEntityOfPage" : { "@id" : "https://www.shojin.co.uk/insights/q4-2025-construction-bulletin-supply-constraints-demand-opportunity", "@type" : "WebPage" }, "publisher" : { "@type" : "Organization", "logo" : { "@type" : "ImageObject", "url" : "https://www.shojin.co.uk/hubfs/Signature%20-%20logo.png" }, "name" : "Shojin Property Partners" } } ``` ```json { "@context" : "https://schema.org", "@type" : "VideoObject", "contentUrl" : "https://6508127.fs1.hubspotusercontent-na1.net/hubfs/6508127/May%20Masterclass%20-%20720p.mp4", "dateModified" : "2023-05-26T10:51:38.814Z", "description" : "", "duration" : "PT1H6M30.144S", "height" : 720, "name" : "Shojin Property Investing Masterclass - May 2023 Market Outlook", "thumbnailUrl" : "https://6508127.fs1.hubspotusercontent-na1.net/hubfs/6508127/May%20Masterclass%20-%20720p.mp4/medium.jpg", "uploadDate" : "2023-05-26T10:48:39.706Z", "width" : 1280 } ``` ```json { "@context" : "https://schema.org", "@type" : "VideoObject", "contentUrl" : "https://6508127.fs1.hubspotusercontent-na1.net/hubfs/6508127/trading_real_estate_investments_online%20(1080p).mp4", "dateModified" : "2022-09-30T15:10:47.504Z", "description" : "Watch Jatin Ondhia, Shojin CEO, and Igor Gorbatsevich, Shojin Head of Digital, discussing how secondary online real estate markets work and how to trade on them.", "duration" : "PT1H6M58.88S", "height" : 1080, "name" : "Shojin's Secondary Marketplace", "thumbnailUrl" : "https://6508127.fs1.hubspotusercontent-na1.net/hubfs/6508127/trading_real_estate_investments_online%20(1080p).mp4/medium.jpg", "uploadDate" : "2022-09-28T16:30:13.178Z", "width" : 1920 } ``` ```json { "@context" : "https://schema.org", "@type" : "VideoObject", "contentUrl" : "https://6508127.fs1.hubspotusercontent-na1.net/hubfs/6508127/grow_your_wealth_through_property%20(1080p).mp4", "dateModified" : "2022-09-30T15:14:01.910Z", "description" : "Find out how you can generate returns over 10% annually from real estate.", "duration" : "PT1H19M59.04S", "height" : 1080, "name" : "Grow Your Wealth Through Property", "thumbnailUrl" : "https://6508127.fs1.hubspotusercontent-na1.net/hubfs/6508127/grow_your_wealth_through_property%20(1080p).mp4/medium.jpg", "uploadDate" : "2022-09-28T16:36:23.767Z", "width" : 1920 } ``` ```json { "@context" : "https://schema.org", "@type" : "FAQPage", "mainEntity" : [ { "@type" : "Question", "acceptedAnswer" : { "@type" : "Answer", "text" : "With construction output 5.1% below 2023 levels and planning approvals at historic lows, traditional programme assumptions no longer hold. 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