The UK housebuilding sector is showing early signs of recovery, with increased activity at the front end of the development pipeline and rising investment intentions, according to the latest Barclays Business Prosperity Index.

Despite ongoing affordability pressures, regulatory requirements and high construction costs, 83 per cent of businesses operating in housebuilding and its supply chains remain confident about their outlook for the year ahead.

The index draws on anonymised data from around 70,000 UK businesses, alongside surveys of 500 industry leaders and 2,000 consumers, and points to strengthening momentum in design, cost management and early-stage project work.

Early-stage activity picks up

Between Q3 2024 and Q3 2025, architects recorded a 2.3 per cent rise in incoming cashflows, while quantity surveyors saw cashflows increase by 4.8 per cent, indicating growing activity at the initial phases of the development pipeline.

However, the data also highlights diverging approaches to finance. Smaller firms have reduced borrowing by 17.7 per cent while increasing savings, reflecting continued caution. By contrast, some larger businesses have increased borrowing by 20.0 per cent, potentially signalling the mobilisation of capital for delivery.

Looking ahead, industry leaders plan to increase total investment by around 38 per cent over the next 12 months, with spending focused on new equipment, recruitment and pay, and marketing.

Skills shortages drive innovation

Skills shortages remain a key constraint. Among businesses experiencing shortages, 40 per cent are investing in modern construction methods to reduce reliance on manual labour, while others are prioritising early careers programmes and workforce training.

Planned investment in artificial intelligence is also increasing, with an average intended spend of £441,281, focused on AI-assisted design and planning, renewable and energy-efficient materials, business automation and building information modelling.

 

Future Homes Standard readiness concerns

Alignment with the Government’s Future Homes Standard is a priority for 98 per cent of firms, yet 82 per cent express concern about their readiness. Installing low-carbon heating systems, applying the new Home Energy Model and meeting ventilation standards were cited as the areas requiring the most support. Despite this, 30 per cent of businesses are investing in equipment, training and technology to improve compliance.

Demand remains strong, but costs persist

Consumer demand for new-build homes remains strongest among younger buyers, with 61 per cent of Gen Z homeowners living in new-build properties. However, high construction costs remain the most significant barrier to delivery, cited by 25 per cent of housebuilders, followed by inflation, raw material costs and regulatory compliance.

Jason Constable, Head of Real Estate, Barclays Corporate Banking, said:

“The level of innovation we’re seeing across the industry from larger developers to specialist trades is encouraging, with businesses investing in technology, skills and modern construction methods to boost productivity.”

John Ainsworth, Head of Real Estate, Barclays Business Banking, added:

“Activity is generally subdued among SME housebuilders… yet SMEs are working hard to overcome skills shortages and regulatory alignment, with their resilience coming through strongly.”