New build house prices boomed 17% last year while older homes dipped: Our map shows price gap in YOUR area

A surge in the price of new build homes over the past 12 months may be masking what is really happening in the property market, new data has revealed. 

The cost of the average new build in the UK rose by a staggering 17.2 per cent in the 12 months to November 2023, according to the latest Government data.

And while new build prices have boomed, the price of existing homes appears to have dipped amid higher mortgage rates. 

This is hidden in house price indexes, which don’t tend to split their figures by property type and have therefore reported for several months that average house prices have been rising. 

Gap opening up: The typical new home as of November 2023 was selling for £413,032 compared to the average existing home, selling for £282,440

But the typical non-new build property, which makes up the vast majority of transactions, actually went down in value by 2.4 per cent in the 12 months to November according to the Office for National Statistics figures. 

The typical new home was selling for £413,032 as of November 2023, compared to the average existing home at £282,440.

Historically, both new-build and existing homes have gone up and down in price at about the same pace. So why are new homes suddenly speeding ahead? 

> Are new build homes more expensive? We crunch the numbers 

Thanks to research by the property development appraisal software firm, Aprao, we were able to track the price of the average new build home compared to existing homes over time. 

In the 10 years leading up to 2023, new-build house prices increased by 60 per cent while existing homes rose 63.5 per cent.

On an annualised basis, that meant new builds were rising by 5.4 per cent on average per year compared to existing homes, which rose 5.6 per cent.

But in 2023, it’s clear that new-build homes have been the driving force holding up overall property prices – and in many regions, the strong new-build sector growth has even helped to prop up what would have otherwise been falling house prices.

New builds more expensive in all UK regions 

New-build values have outperformed the existing homes sold across every region of Britain, according to the analysis by Aprao.

For example, the average new build in the North East rose in price by 20.9 per cent last year. However, existing stock on the market fell by 0.8 per cent.

In London, the average new-build property rose by 11 per cent in value in 12 months to November. Meanwhile, existing London stock fell by 4.4 per cent on average.

In Scotland, the average new build price was up 18.7 per cent in the 12 months to November compared to a 1 per cent fall in value across existing stock.

Why are new build prices booming?

Some property experts believe that developers have effectively increased new build prices by cutting back on supply.

Last year, amid higher mortgage rates, sales volumes took a hit. Housing transactions fell by 19 per cent during 2023 to just over 1.02 million, according to HMRC figures.

In the face of this falling demand from buyers, many house builders and developers appear to have cut back on building, according to figures from the National House Building Council.

The NHBC’s figures revealed 87,564 new homes were completed in the private sector in 2023, down 20 per cent on 2022 when 109,829 were completed. Completions refer to when a plot is confirmed as ready to be occupied.

Less building: New homes completed in 2023 were down 20% when compared with 2022

Are housebuilders stalling to push up prices? 

Housebuilders are sometimes accused of sitting on building projects when times are tough, slowing the rate at which they complete homes so they can sell them for higher prices after the market recovers. 

This reduces the supply of homes and can increase prices due to more competition. Is that what is happening here?  

Peter Bill, the property author and commentator, says: ‘The disproportionate rise in the price of brand new homes is directly related to the 15 per cent to 20 per cent deliberate cut in supply by volume house builders. They have successfully maintained prices by cutting supply.’

House builders will have also seen their margins squeezed by the rising cost of construction and finance.

Since 2019, the average cost of construction materials has climbed by 33.2 per cent, according to separate analysis by Aprao.

Some things have risen more than others. For example, insulating materials have risen 61.4 per cent, pre-cast concrete products are up 55.8 per cent and plastic doors and windows are up 49.6 per cent.

> True Cost Mortgage Calculator: Check what a new fixed rate would cost 

Shovels in the ground and cranes in the sky: Since 2019, the average cost of construction materials has climbed by 33.2% according to analysis by Aprao

Daniel Normal, chief executive of Aprao says: ‘The pandemic presented a myriad of challenges for the nation’s housebuilders, with restrictions around producing and importing building materials leading to a spike in costs.

‘But while the pandemic itself may be well and truly behind us, it’s fair to say that the same challenges remain today, with the cost of many materials remaining higher than they were even a year ago.

‘At the same time, developers are being hit with higher costs on other fronts, with higher interest rates playing their part, while their wage bill will have also increased.’

Peter Bill feels the combination of lower buyer demand, alongside extra construction and finance costs will have caused many housebuilders to cut back on the stock they are making available.

Peter Bill is the author of Property Planet and co-author of Broken Homes: Britain’s Housing Crisis: Faults, Factoids and Fixes

He says: ‘A house builder or developer needs to be confident about how much a property will sell for before buying a site. A developer will nearly always target a minimum 20 per cent profit.

‘For example, say a developer initially projected that its income from sales will be £1,000,000, they will build in £200,000 profit into their sums. Say they have estimated the construction costs to be £600,000. That leaves them a £200,000 budget to buy the land or old building.

‘They acquire the land and make plans to begin building work. However, due to higher mortgage rates, it now anticipates that the development will sell for £900,000, rather than £1,000,000. That will cut their £200,000 profit in half.

‘Meanwhile, higher than anticipated costs of construction may also be eating into their profit margins.

‘Big housebuilders are more fortunate than smaller developers. They can afford to wait for prices to recover, rather than sell at lower margins – or at a loss.

‘Instead, they cut costs and slow the rate of construction, rather than cut prices.’ 

However, Anthony Codling, head of European housing and building materials for investment bank, RBC Capital Markets, believes that the surge in prices is ultimately being driven by demand from buyers.

‘New build prices only rise if demand is greater than supply. If the homes aren’t selling, the prices will come down.

Anthony Codling, head of European housing and building materials for investment bank RBC Capital Markets

‘If we look at the market, mortgage rates are lower than they were a few months ago and wages are rising, therefore homebuyers can afford to spend more now than they could a few months ago.’

Rather than housebuilders purposely cutting back on supply, Codling argues that an inadequate planning system is slowing them down.

‘Housebuilders would like to sell more homes,’ says Codling. ‘There are very few, if any, businesses that seek to sell fewer products than they could. 

‘The issue facing housebuilders is a planning system moving at a glacial pace, housing targets have been scrapped, planning departments funding has been cut and therefore fewer planning permissions are being granted. 

‘It is the planning system that is holding back housing supply, not housebuilders, they are in the business of building houses.

Codling adds: ‘Build costs continue to rise, but housebuilders cannot automatically pass these costs on to the homebuyer, because don’t forget for every one new build there are seven or eight second hand alternatives where build costs have long been forgotten and therefore do not impact the price.’

If new builds were to begin cutting prices and sell at lower prices than the market value, it would represent ‘commercial suicide’, according to Codling, particularly if they then run out of homes to sell.

He adds: ‘Housebuilder profits have already fallen significantly, margins have fallen by about 50 per cent across the sector, and if housebuilders run out of money and go bust, we will get even fewer new homes, so we need to be careful what we wish for.’

*Please note that the data on new build and existing homes prices is based on ONS data taken from the Land Registry. It excludes Northern Ireland’s house price data. Northern Ireland prices are based on a quarterly figure only.