The UK housebuilding sector is showing tentative signs of recovery, with businesses ramping up investment in productivity, skills and innovation despite ongoing affordability pressures and regulatory challenges.
According to the latest Barclays Business Prosperity Index, four in five businesses (83 per cent) operating across housebuilding and its supply chains remain confident about their outlook for the year ahead. The report draws on anonymised Barclays client data from around 70,000 UK businesses, alongside surveys of 500 industry leaders and 2,000 consumers.
Early-stage activity in the development pipeline is beginning to strengthen. Between the third quarter of 2024 and the same period in 2025, architects recorded a 2.3 per cent rise in incoming cashflows, while quantity surveyors saw a 4.8 per cent increase – a signal that new schemes are moving through planning and design stages.
The data also points to a split in behaviour between smaller and larger firms. Smaller businesses have become more cautious, cutting borrowing by 17.7 per cent while increasing savings buffers by 3 per cent. In contrast, a smaller number of larger firms have increased borrowing by 20 per cent and drawn down savings by 8.9 per cent, suggesting capital is being deployed to support growth.
Looking ahead, housebuilding firms plan to increase total investment by around 38 per cent over the next 12 months. Spending is expected to rise sharply on marketing (42 per cent), new equipment (39 per cent) and pay to attract and retain talent (37 per cent).
Innovation, skills and artificial intelligence are emerging as key priorities. Four in 10 businesses facing skills shortages are investing in modern construction methods to reduce manual labour, while 39 per cent are developing early-career schemes and 36 per cent are increasing training and upskilling.
Planned AI investment now averages £441,281 per business, reflecting growing demand for AI-assisted design and planning tools, renewable and energy-efficient materials, automation software and building information modelling. Intended AI spend is highest in electronics, exceeding £500,000 on average, while trades such as plumbing, carpentry and painting and decorating are also allocating smaller but significant sums.
While alignment with the Government’s Future Homes Standard is a near-universal priority, cited by 98 per cent of firms, confidence in readiness remains low. More than eight in 10 businesses (82 per cent) say they are concerned about their ability to comply, particularly around installing low-carbon heating systems, applying the new Home Energy Model and meeting updated ventilation requirements. Despite this, 30 per cent are already investing in specialist equipment, training and technology to improve compliance.
On the demand side, new-build homes continue to appeal strongly to younger buyers. A quarter of all homeowners live in a new-build property, rising to 47 per cent among those who bought their first home in the past year. Among Gen Z homeowners, 61 per cent live in new-build homes, with location, favourable mortgage terms and energy efficiency cited as key drivers.
Affordability pressures remain, however. Nearly two-thirds of Gen Z aspiring buyers say mortgage rates have a greater impact on affordability than house prices, underlining the sensitivity of demand to borrowing costs.
Jason Constable, head of real estate at Barclays Corporate Banking, said the level of innovation across the sector was encouraging. “Businesses are investing in technology, skills and modern construction methods to boost productivity. Combined with stronger demand for new-builds, this presents a clear opportunity for growth as market conditions stabilise.”
John Ainsworth, head of real estate at Barclays Business Banking, added that while activity among SME housebuilders remains subdued, resilience is evident. “Smaller firms are working hard to overcome skills shortages and regulatory pressures. Supporting their ability to scale will be critical if the industry is to meet the Government’s housing targets.”
The findings suggest that while challenges persist, early pipeline activity, rising confidence and increased investment point to a sector cautiously positioning itself for recovery.
