Rising UK building costs curb growth plans

A £1 billion regeneration of Purfleet-on-Thames, east of London, has stalled, illustrating how rising building costs are hindering development and economic growth in Britain. Seventeen years after the project was first announced, only 34 of about 3,000 planned new homes have been built and the area earmarked as a future town centre remains largely an industrial park with overnight truck parking.

Local officials are now carrying out due diligence in an attempt to revive the scheme with a new developer. Thurrock Council documents show the previous developer struggled to raise debt and equity to meet high upfront costs for land adaptation and building infrastructure, underscoring how financing pressures interact with rising construction expenses.

A review by KPMG found that the viability of a new initial phase of the Purfleet project is “highly constrained”. It concluded that the scheme would need a lower-than-normal provision of affordable housing and £118 million of public funding at a time when the national budget is under strain.

Across the wider housing market, higher construction and regulatory costs are weighing on activity. The Home Builders Federation estimates that the cost of building a home has risen by £76,000 since 2020, with Prosper UK assessing that about half of this increase stems from government decisions on regulation, policy and taxation.

New rules covering areas such as building safety, biodiversity, water quality and carbon emissions have added to developers’ expenses. Interviews with experts, investors, business leaders and economists point to the cumulative impact of labour, taxation, inflation and successive regulatory requirements as key drivers of rising costs.

These pressures have led many property investors to scale back or pause projects, and S&P Global surveys show housebuilding activity has been shrinking for almost all of the last two years.

Planning constraints are compounding the impact of cost inflation. The Home Builders Federation estimates that 370,000 homes need planning permission each year to meet the government’s goal of delivering 1.5 million homes between 2024 and 2029, but current approvals are running at only about 58% of that level.

Industry experts say recent planning reforms are intended to speed up decisions by limiting the scope for legal challenges, removing some consultation requirements and granting ministers more powers. Budget forecasters estimate that these changes could increase the economy’s potential output by 0.2% by 2029 and by 0.4% in the mid-2030s through higher productivity and improved housing services.

However, faster approvals may not be sufficient if developers cannot secure financing or absorb higher build costs, leaving some projects commercially unviable even when they have permission. This tension is evident in schemes such as Purfleet-on-Thames, where high upfront infrastructure costs and funding gaps continue to impede progress.

Britain is also grappling with delays and high costs in major infrastructure projects. Work has finally begun on the £10 billion Lower Thames Crossing road tunnel, first considered in the 1980s, after a prolonged pre-construction period. The project’s planning file exceeds 359,000 pages, and uncertainty has weighed on local companies and investment decisions.

Consultants estimate that securing planning consent for a major infrastructure scheme can cost between £500 million and £1 billion. Boston Consulting Group analysis shows the UK as the slowest among several countries studied for pre-construction work, of which planning is a substantial part, highlighting a broader structural drag on project delivery.

The economic backdrop reinforces the urgency of tackling these obstacles. The International Monetary Fund expects the UK economy to grow by 1.3% this year, among the faster rates in the Group of Seven but less than half the average pace recorded in the 15 years before the 2007–2009 global financial crisis.

Growth is projected to slow to 1.2% in 2027, leaving policymakers juggling demands for higher public spending in areas such as health, education and defence with higher borrowing costs. The government has signalled plans to reduce regulation and the cost of doing business, but rising construction expenses and planning frictions continue to challenge its growth ambitions.