Winter 2025/26 Frankham Market Update

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UK construction activity weakened significantly at the end of 2025, with output data showing a 2.1% fall in total output in the three months to December—the sharpest contraction since early 2022. The downturn was broad-based, reflecting subdued demand, stalled development pipelines, and tighter financing conditions that continued to limit the progression of new work into 2026.

Market sentiment deteriorated throughout late 2025. Business surveys signalled the fastest pace of output contraction since Covid, driven by falling new orders, weak private residential activity, and softer confidence across civil engineering businesses. The PMI readings reinforced concerns across the supply chain, with contractors describing risk-averse clients, slow decision making, and fewer viable tender opportunities.

Despite short-term strain, industry forecasts point to a return to growth during 2026. Analysts expect output to rise by around 10%, with further acceleration in 2027. The recovery is likely to be led by infrastructure, public sector investment, and retrofit programmes linked to building safety, decarbonisation, and estate upgrades.

The new build residential sector is likely to remain challenging; private housing and commercial development are expected to lag until financing conditions improve further and viability challenges diminish. Persistent structural issues, including labour shortages exceeding 200,000 workers and mounting regulatory obligations relating to building safety and planning continue to shape how schemes are procured and delivered.

Applications opened in late February for registered providers, housebuilders and councils to secure part of the £39bn of funding promised under the Social and Affordable Homes Programme. The fund, announced in mid-2025, is targeting the delivery of 300,000 homes over 10 years, with 60% of those for social rent. £11.7bn has been ringfenced for London, managed by the Greater London Authority with £28.3bn for the rest of England, managed by Homes England.

Bids for funding will be assessed on value for money, strategic fit and deliverability and whilst the programme runs for ten years and requires commencement on site by March 2036, there is a specific focus on accelerating delivery to meet housing targets. The programme encourages completions by 2029 by prioritising those targeting this, supporting the government’s commitment to delivering 1.5 million homes in this parliament.

Civil engineering remains a clear source of resilience, with several nationally significant projects scheduled to begin in 2026. These include the £10.2bn Lower Thames Crossing, the £700m British Library Extension, and the £3bn Haweswater Aqueduct Resilience Programme. Collectively, the top 100 schemes commencing in 2026 represent £39bn of new work, underscoring infrastructure’s central role in the sector’s medium-term recovery.

Financial risk, however, remains elevated. Construction entered 2026 as the UK’s most insolvency‑exposed sector for the fourth consecutive year. Contractor failures, profit warnings, and increasing credit stress continue to threaten supply chain stability. The failure of FK Facades and Construction in January 2026 highlighted the vulnerability of specialist and subcontractor markets to tight cashflow conditions and delayed payments.

Labour scarcity and delivery constraints also remain defining characteristics of the market. An ageing workforce, limited apprenticeship uptake, and persistent skills shortages have led many contractors to alter delivery strategies. Firms are increasingly adopting off‑site manufacturing, standardisation, simplified design principles, and earlier supply chain involvement. Retrofit and remediation, particularly across schools and healthcare are expected to provide stable workload throughout 2026, an area that Frankham Group remain at the forefront of providing expert services in delivery.

With planning approvals at historic lows and many schemes struggling for viability, procurement has leaned heavily towards two-stage tendering, negotiated routes, and early engagement. The focus has moved away from speculative pipeline creation towards well‑funded, tightly controlled projects with clear risk allocation.

Eighteen months into the five‑year programme to deliver 1.5 million new homes, the latest data indicates that 310,000 homes were completed between July 2024 and January 2026. Should this delivery rate persist for the remainder of the Parliamentary term, the government is projected to fall approximately 33 per cent short of its stated target.

Planning approvals fell to their lowest level in more than 15 years by late 2025, with only c.208,000 homes approved in the year to September 2025 — far below the volumes required to meet national housing targets. This deterioration significantly undermined the pipeline of new housing delivery heading into 2026

In an attempt to increase the rate of delivery, Government’s Planning and Infrastructure Bill received Royal Assent in December, becoming the Planning and Infrastructure Act 2025. The Act represents one of the most significant overhauls of England’s planning system in decades, aiming to accelerate housing delivery and remove long‑standing barriers to critical infrastructure development.

With this landmark legislation now in force, a broad suite of measures will be rolled out at pace to fast‑track new homes and essential national infrastructure. Key reforms introduced by the Act include:

Creation of a Nature Restoration Fund – enabling developers to begin construction more quickly across multiple housing and infrastructure sites, while Natural England delivers large‑scale programmes to restore habitats and improve biodiversity.
Streamlined legal challenge process – reducing the number of permitted attempts to challenge Government decisions on major infrastructure projects from three to one in cases deemed by the courts as totally without merit.
Modernised planning committees – refocusing committee time on significant schemes rather than minor applications, helping accelerate local decision‑making for new housing.
Expanded powers for development corporations – supporting the rapid delivery of large‑scale schemes, including future generations of new towns, with a stronger emphasis on affordable housing and integrated public transport.
Simplified approval routes for public EV charging infrastructure – cutting bureaucracy to reduce both time and cost while supporting the transition to clean transport and energy.
Electricity bill incentives for host communities – enabling discounts of up to £2,500 over 10 years for residents living in areas that accommodate new pylons or transmission infrastructure.
Easier land acquisition for essential services – improving processes for securing land needed for new homes, GP surgeries, schools, and other vital public facilities.

With interest rates continuing to fall, optimism is returning to the UK housing market. The January Royal Institution of Chartered Surveyors (RICS) UK Residential Survey reflects this shift, with new buyer enquiries improving again; the net balance (percentage of respondents reporting a rise minus the percentage reporting a fall) rising to -15%, up from -21% in December and -29% in November, signalling easing downward pressure on demand.

Further support for housing market growth is emerging from improvements in the Building Safety Regulator’s (BSR) approval processes. Changes implemented in late 2025 are now delivering results. The latest BSR data shows that the final quarter of 2025 recorded the highest number of decisions in any quarter since the regulator began operations, reaching 673 approvals compared with just over 200 in Q1 2025. In addition, the number of live applications across all categories at Gateway 2 is now trending downward, falling from 1,225 to 1,159 over the past 12 weeks.

While market sentiment and headline indicators were subdued at the end of 2025, and reignited tensions in the Middle-East have already driven up oil prices and will undoubtably cause instability in materials price and supply, there are now clear reasons for confidence as we move into 2026. Overall, the outlook is increasingly positive, and we remain hopeful for a buoyant and resilient industry in the year ahead.

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